The government has released a plan outlining substantial changes in a new proposal paper entitled ``A plan to simplify and streamline superannuation’’. The new system will replace reasonable benefit limits, aged-based limits and other current concessions. The major reform announced will exempt superannuation benefits paid from taxed funds to taxpayers aged 60 and over. Other proposed modifications will limit post-tax contributions to $150,000 a year and remove the compulsory drawing of superannuation amounts.
Superannuation benefits paid from taxed funds will be tax-free in the hands of taxpayers aged 60 years or older from 1 July 2007. The exemption applies to benefits which have been subject to contributions and earnings tax.
The exemption applies regardless of whether the benefits are paid as pensions or lump sums. Benefits which have not been taxed, such as amounts held in defined benefits funds will be taxed when received at a lesser rate than now.
Taxpayers aged under 60 years will be taxed using a new simplified system. The current reasonable benefits limit will be scrapped.
The proposed system will also eliminate compulsory drawdowns of superannuation, allowing taxpayers to keep their benefits in their superannuation funds as long as they wish.
The government has also unveiled plans to reform the treatment of superannuation contributions. From 1 July 2007 the current aged based limits will be removed and replaced with a fixed annual limit of $50,000 regardless of age.
Transitional measures will be enacted for persons over 50 years of age. Employer contributions will be fully deductible.
Anti-avoidance measures will also be introduced to limit high-wealth individuals from making large payments of post-tax income into superannuation. The government will restrict taxpayers to a maximum of $150,000 per year of post-tax contributions. This measure will apply from 9 May 2006.
The government’s plan will also align the super contributions of self-employed workers with other employees. As a result self-employed taxpayers will now be able to claim a full deduction for pre-tax contributed amounts.
Taxpayers will also have a longer period to make deductible contributions, with the current age limit raised to 75.
IMPORTANT NOTE:
The information provided should not form the sole basis for any action that you take. It is important to first discuss your specific circumstances with your financial Adviser.
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