Under the Government’s plan, Australians aged 60 and over who have already paid tax on their superannuation contributions and earnings will not pay tax on their superannuation benefits from 1 July 2007. The Treasurer said that the removal of benefits tax would sweep away the complexities retirees face when taking their benefits. As superannuation benefits would no longer be assessable income, there will be an incentive to continue to work while drawing down on superannuation as people would pay less tax on their work income.
The Government will also abolish reasonable benefit limits (RBLs), introduce new streamlined rules for contributions (see below) and give individuals greater flexibility as to how and when they wish to draw on their superannuation in retirement. The ability to make deductible superannuation contributions would also be extended to age 75. The self-employed will be able to claim a full deduction for their superannuation contributions as well as being eligible for the Government co-contribution for their personal post-tax contributions.
In relation to contributions, it is proposed that the current contribution tax arrangements would be replaced with a streamlined set of rules from 1 July 2007 with a single rate of concessional contributions of $50,000 per annum. Employers would be able to claim a full deduction for superannuation contributions. Contributions in excess of the $50,000 limit will be taxed at the top marginal rate. Currently, concessional superannuation contributions are taxed at 15%. If an employer makes a contribution above the age-based limit, the contribution is still taxed at 15% but the employer is denied a 30 % deduction on that contribution. A transitional period would apply for people who are aged 50 and over. A cap on contributions made between 9 May 2006 and 1 July 2007 will also be introduced if the plan is implemented.
As part of the superannuation reform there would also be reform of the pension assets test which would benefit age pensioners affected by the assets test. The assets test taper rate would be reduced from $3 to $1.50 per fortnight with effect from 20 September 2007. A pensioner’s home would remain outside the assets test.
This would allow a single retiree homeowner to have around an additional $165,000 of assets before losing the age pension, while a couple could have around $275,000 of additional assets before losing the age pension.
For a copy of the Treasurer's press release No 42, 9 May 2006, go here