Australian Superannuation Reforms – Tax Laws Amendment (Simplified Superannuation) Act 2007

The May 2006 Australian Budget announced some of the most significant reforms to the Australian superannuation system. These reforms were enacted in a package of 11 Acts, the most significant being the Tax Laws Amendment (Simplified Superannuation) Act 2007 (‘the Acts’) that received Royal Assent on 15 March 2007.

The key reforms contained as confirmed in the Acts are as outlined below. We note that these are broadly the reforms that are contained in the Acts. However, they may be subject to certain specific exemptions or exclusions in certain circumstances.

1. Any personal post-tax contributions to an Australian complying superannuation fund will be subject to annual caps of AUD 150,000 (with people aged less 65 and below being able to bring forward 3 years of contributions, enabling AUD 450,000 to be contributed in one year, with no further contributions in the following 2 years);
2. If the entire benefit payment from a non-resident superannuation fund is rolled directly into an Australian complying superannuation fund in circumstances where the remaining balance of the Fund is nil, the post-residency earnings component (i.e. the Taxable Amount) will be taxed at a rate of 15% in the Australian complying superannuation fund.   We note that the ‘non-taxable’ part of the roll-over (i.e. the capital component) will count towards the newly introduced cap on post tax contributions;
3. Superannuation benefits paid from a taxed source either as a lump sum or as an income stream (e.g. a pension) would not be subject to tax for individuals aged 60 and over;
4. Superannuation benefits paid from an untaxed source (primarily affecting public servants only) would still be subject to tax but at a rate lower than what it is currently for individuals aged 60 and over;
5. Death benefits that are paid to dependants will be tax-free but death benefits that are paid to non-dependants will be subject to tax at the rate of 15%;
6. Reasonable Benefits Limits would be abolished in relation to superannuation benefits paid out;
7. There would be no forced payment of superannuation benefits after age 65 – this would allow greater flexibility as to how and when to draw down one’s superannuation upon retirement;
8. The concessional tax treatment of contributions and earnings would remain. However, previous complex legislation governing age-based restrictions (applying to those under the age of 60) limiting tax deductable superannuation contributions would now be replaced with a streamlined set of rules;
9. Self-employed individuals would be able to claim a full deduction for their superannuation contributions in addition to being eligible for Government co-contribution for their post-tax contributions; and
10. Deductible superannuation contributions can now be made until the age of 75.
    

This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter.  You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances.  The authors and consultants expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.