On 5 September 2006, the Federal Government released the final version of its Simpler Super proposals. After a wide-ranging community consultation process, Treasurer Costello has confirmed that the Government will proceed with most of its original reforms but some transitional arrangements will be put in place to make the the new superannuation system fairer for pre-retirees, easier to administer and improve its overall integrity.
The main objective of the original plan was to remove benefits tax from 1 July 2007 for Australians aged 60 and over who have already paid tax on their superannuation contributions and earnings. Other key changes proposed in the plan were:
- the abolition of reasonable benefit limits and age-based contribution limits;
- greater flexibility for individuals as to how and when they wish to draw on their superannuation in retirement;
- allowing the self-employed to claim a full deduction for their superannuation contributions and be eligible for the Government co-contribution for their personal post-tax contributions; and
- halving the current pension taper rate to $1.50 from 20 September 2007.
The following additional measures have been introduced to iron out some inequities for pre-retirees, particularly those who were planning to make large super contributions prior to retirement.
The new arrangements are as follows.
- Subject to any applicable work test, people will be able to make up to $1 million of post-tax contributions between 10 May 2006 and 30 June 2007.
- The $150,000 annual limit on post-tax contributions will commence from 1 July 2007.
- People aged less than 65 will be able to bring forward two years of contributions, enabling $450,000 to be contributed in one year, with no further contributions in the next two years.
- In addition to the annual cap, people can contribute a lifetime limit of $1 million from the sale of small business assets which have been held for 15 years, and settlements for injuries resulting in permanent disablement.
- Indexation of the contribution caps to Average Weekly Ordinary Time Earnings in increments of $5,000 to make it easier for people to understand how much they can contribute to superannuation.
- Administration of the contribution caps will be streamlined.
- There will be transitional arrangements for employer ETPs which were specified in existing employment contracts as at 9 May 2006 and are paid before 1 July 2012.
- The concessional tax treatment of the employee invalidity benefits will be extended to the self-employed.
- New arrangements to encourage people to quote their tax file number to their superannuation fund.
- The concessional amount of lump sum benefits from an untaxed source will be increased from $700,000 to $1 million.
- The supervisory levy for self managed super funds will be increased from $45 to $150 which will place SMSFs on a similar cost recovery basis to other superannuation funds.
Full details of the Government’s superannuation changes can be found at http://www.simplersuper.treasury.gov.au.
