SINCE the treasurer proposed major changes to the superannuation rules in the May Budget there has been intense debate and negotiation over them. Finally the new rules passed the Parliament last Wednesday.
There are many similarities to the original announcements but also changes. The original proposal for a $500,000 lifetime limit on non-tax-deductible contributions starting from 2007 has been dropped due to protests it is retrospective.
Instead there is a limit of $100,000 per financial year. Fund members can bring forward two years contributions. So people who receive lump sums from inheritances and asset sales can contribute up to $300,000 at once, but no more for three years.
The limit of tax-deductible contributions will reduce from $30,000 per annum, and $35,000 if over age 50, to $25,000. Higher earners and older workers with surplus incomes have a limited opportunity to contribute up to the maximum until June 30.
The new rules will be helpful for people with lower super balances and incomes. Anyone under age 65 will be able to claim tax deductions for personal super contributions. It was originally proposed that this would apply up to age 75 but the limit is 65.
So when June comes around anyone who has spare cash in the bank and wants a tax deduction will be able to make a super contribution and earn a tax refund or reduce their tax bill. Working people aged 65 to 74 will still be able to contribute, and claim tax deductions if self-employed.
The spouse super contribution rules have been updated. Anyone who makes a super contribution for a low-income spouse is entitled to a personal tax rebate. The maximum is $540 if a $3,000 contribution is made.
The big change is in the definition of ‘low income’. From July the spouses’ taxable income can be up to $37,000 rather than $10,800 currently. A part rebate will be paid if the spouses’ income is up to $40,000.
The Government has also decided not to abolish the refund of contribution tax that applies to low earners’ contributions. The 15 per cent tax payable on contributions will continue to be refunded for people with taxable incomes under $37,000. This provides them with a handy boost.
There will be a new 15 per cent tax on the earnings of pre-retirement pensions paid to people under age 60. There will also be a limit of $1,600,000 on the amount retirees can transfer into pension accounts.
Those who already have more than that in their pension accounts will need to transfer the excess back to an accumulation account subject to 15 per cent earnings tax.