HEALTH & LIFE’S BEST PRACTICE NEWS ALERT CURRENT CIRCULATION: DATE: ISSUE NO:
7017 26th April 2007 142
Welcome to Health & Life’s free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health and Life’s clients and those who attended our presentations with up to date information on key financial and practice management issues that may affect your practice. Please do not use this as a substitute to seeking professional advice. Writer in charge: Mr Maurice Nistico DipFP CFP GAICD.
Hurry Super Double Tax Deduction Opportunity Part 1
Problem: Part 1 - The new superannuation system – limited time to make smart decisions before June 30th 2007 Superannuation is one of the most tax-effective ways of providing for your future. The 2006 Federal Budget changes only make it more attractive. Capitalising on the key changes before & after 1 July 2007 is important! In this issue - A snapshot of the key opportunities leading up to 1st July 2007 Next Issue – Superannuation ‘Double Deduction – a key opportunity before June 30th. 1. Tax free benefits from age 60 2. After-tax contributions of up to $1 million from 10 May 2006 to 30 June 2007 3. Universal contribution limits 4. After-tax (or undeducted) contributions 5. Self-employed breaks 6. Retiring before 60 7. Penalties for not Notifying Your Superfund Your Tax File Number 8. Where to from here?
Hurry Super Double Tax Deduction Part 1
1. Tax free benefits from age 60 From 1 July 2007, there will be no tax payable on superannuation benefits, whether taken as a lump sum or pension, once you turn 60. Reasonable Benefit Limits (RBLs) are being removed as well, so there will be no limit on the amount you can accumulate in super. 2. After-tax contributions of up to $1 million from 10 May 2006 to 30 June 2007 This is a one-off opportunity to take advantage of your super fund’s growth potential and a taxfriendly environment. There has never been a better time to consider putting as much money as you can afford into superannuation.
If you have recently received a lump sum such as an inheritance, bonus or proceeds of certain sales of business assets remember you only have a short time to make the most of your opportunity. 3. Universal contribution limits The current age-based limits for deductible employer contributions will also be removed from 1 July 2007. The limits will be replaced with an effective limit of $50,000 a year, regardless of your age. Currently, age-based limits set the maximum amount you can make in deductible contributions each year. For 2006/2007, these are: Age Under 35 35 to 49 Over 50
Deductible employer contributions maximum of $15,260 a year maximum of $42,385 a year up to $105,113 a year
Previously, many people waited until they were close to retirement before increasing their savings in super. With the changes, this will no longer be the case, and a “steady as she goes” philosophy will be needed to maximise your income in retirement. So that people over age 50 are not disadvantaged – the amount they are allowed to contribute to super has been slashed in half with the new rules – the Government is offering a transitional period. If you are 50 or over, you will be able to contribute $100,000 a year for the period up to June 2012. 4. After-tax (or undeducted) contributions Undeducted contributions made to super from after-tax income will also be subject to change from 1 July 2007. You will only be allowed to make undeducted contributions of up to $150,000 a year. In the past, you could contribute as much after-tax money as you wanted. The $150,000 cap is to counter the abolition of the Reasonable Benefit Limits and the removal of benefits tax after age 60. The Government is aware that the changes to undeducted contributions could catch people out so it is will allow people to average the $150,000 over 3 years. As a result, if you were to sell a property and reap $450,000 from the sale, you could put all that money directly into your super account, but you would then be unable to make any further undeducted contributions for the next 3 years. The ability to average contributions in this way will commence from 1 July 2007. 5. Self-employed breaks If you are self-employed, you will also enjoy some benefits if the Budget changes are adopted. You will be able to claim a full deduction on all your superannuation contributions up to the effective limit of $50,000.
Up until now self-employed people were at a disadvantage to employees. Currently, if you work for yourself you can claim 100 per cent of your first $5,000 of contributions, but then only 75 per cent of the balance up to your age-based limit. From 1 July 2007, you will have equality with employees and can claim the entire amount. Also, if you are self-employed but earning less than $58,000 a year, you can take advantage of the co-contribution scheme. Under this scheme, the Government will match a $1,000 contribution from your after-tax income with a $1,500 payment if you earn less than $28,000. The co-contribution then reduces at 5 cents for each dollar you earn above $28,000 up to a maximum of $58,000. 6. Retiring before 60 Since tax-free income in retirement only commences from age 60, many of the existing strategies remain the same for those aged 55 to 59. If you choose to take early retirement, you will still be faced with tax on benefits and tax-free thresholds, so there is room for such strategies as contribution splitting and recontributions. But even if you decide to wait until you’re 60, it’s still a good idea to make sure you put as much money as possible into the tax-free superannuation environment for your retirement. Should the Budget proposals be implemented, just be aware that most changes will only apply from 1 July 2007. 7. Penalties for not Notifying Your Superfund Your Tax File Number From 1 July 2007, the personal contributions you intend to deduct and employer contributions made to new super accounts without a tax file number (TFN) will be taxed an additional 31.5%. For existing accounts, the additional 31.5% will generally be payable on all contributions once the contributions for the year reach $1,000. For accounts created after 30 June 2007, the additional 31.5% will be payable regardless of the amount contributed. To avoid this you must provide your TFN to your super fund. If your fund pays the additional tax and you provide your fund with your TFN, your fund may be entitled to claim a tax offset. Your fund will credit the tax offset to your account. However, regulations to give effect to this announcement have not yet been made. The government has also announced that super funds will not be able to accept certain member contributions if you have not provided your TFN. However, regulations to give effect to this announcement have not yet been made.
8. Where to from here? 1. 2.
Given the changes prosed to super, re-examine your retirement savings strategy. Should you bringing forward undeducted contributions to super pre June 30th? Are their assets you currently hold outside of super that should be migrated to super? Consult your adviser to discuss these issues. If you require retirement income calculations or more information about any issues raised in this article. Call us on 1800 077 222 or email Maurice Nistico on mauricen@healthandlife.com.au . We are happy to receive any feedback and will provide a free initial telephone consult.
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