aonSUPERANNUATION CHANGES

Don’t miss your window of opportunity

The proposed changes to super announced in the 2006/07 federal budget will have far reaching implications for the way Australians save and plan for retirement.  Since then, in September 2006, the Federal Government announced further amendments to the new rules.
There is a window of opportunity to take advantage of the new rules and to find out how major changes to super could affect your plans.

Super changes What you need to know

One million reasons to act now

Before 30 June 2007 there is a window of opportunity to make an undeducted contribution to super up to $1 million.  After 1 July 2007, eligible super fund members under age 65 will be able to make undeducted contributions of $150,000 per year or $450,000 in a single year but foregoing the ability to make extra undeducted contributions in the following two years. While people age 65 to 74 can make up to $150,000 of undeducted contributions each year provided they meet a work test.

Tax cuts make super more effective

From 1 July 2007, both lump sum and pension benefits paid to retirees aged 60 and over from taxed super funds will be exempt from tax. Tax will still be payable on benefits paid to someone under age 60, although simpler rules will apply. As a result, super becomes far more attractive for taxpayers. The above changes make super one of the most tax effective investments a person can make. However, with new limits on the maximum amount that can be put into super each year, there is a big incentive to make super contributions earlier in life. For people already retired, a more tax-effective super system means more cash in your pocket to spend on the things you enjoy the most. The good news is it may also mean you won’t have to complete an annual tax return – for couples with an income below $41,360 per year or $24,867 of income from non-super sources for a single person. If you are not yet retired, a more attractive super system means extra incentive to contribute into super in the lead-up to retirement.

New restrictions on tax deductible super contributions

From 1 July 2007, the current age-based deduction limits will be abolished and replaced with a single limit. The first $50,000 per annum of employer and personal deductible contributions will be taxed at 15 per cent. Any amount above this will be taxed at the top marginal tax rate. As a transitional arrangement, people aged 50 and over will be able to contribute $100,000 per annum on a concessionally taxed basis until 2011/12.

Reasonable benefit limits (RBLs) abolished

One of the more significant changes will be the abolition of RBLs from 1 July 2007. There will be no limit on how much may be saved in super on a concessionally taxed basis. The big winners will be people who have super benefits already nearing or exceeding their RBLs – they won’t have to worry about some of the more complex strategies and inflexible income streams to reduce tax.

How you can benefit

Older workers benefit from new super rules

New rules mean you now have more flexibility in working arrangements in the lead up to retirement. Under the ‘old’ rules you had to satisfy a work test of 240 hours in the previous financial year in order to keep your money in super. Now, you can keep your money in super, regardless of your age or whether you’ve met a work test. From 1st July 2007 you will also be able to make deductible super contributions to age 75, subject to an annual work test, it was age 70 under the ‘old’ rules. This change gives greater flexibility for those working past age 65 to contribute to super on a concessionally taxed basis. If you are working past age 65, speak to your financial adviser about how the new rules will affect you.

Consider investments held outside super

The money you take out of super in retirement from age 60 will be tax free from 1 July 2007. However, you’ll still have to pay tax on income earned from investments held outside of super. The next time you’re speaking to your adviser, ask them to assess any of your investments held outside super to see if you’ll be better off if you move them into super.

Estate planning implications

The new rules from 1 July 2007 have some interesting implications for estate planning. For example, keeping your assets in super as long as possible may be more tax-effective. However, if you have a beneficiary that is not a dependant for tax purposes (such as an adult child) the death benefit paid to the beneficiary later would be subject to tax. Your adviser can help you by reviewing your estate plan with respect to the new rules.

Super changes will impact insurance

Purchasing life insurance through your super will be more attractive from 1 July 2007. Under the ‘old’ rules there is a limit on the amount of life insurance that could be paid to your dependants tax free. Under the new rules, limits will be abolished meaning that insurance pay outs to dependants will be unlimited and tax‑free. Talk to your adviser if you need assistance with reviewing your existing insurance policies.

How your adviser can help

Over the years there have been many changes to super and it’s likely that further changes are on the horizon. Your financial adviser can help guide you through the changes and help you take advantage of any opportunity that comes your way.

Call All Financial Services today on 02 9258 4000 and make a no-obligation consultation today.

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