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Changes to Superannuation

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The superannuation system is changing from 1 July 2007. According to the Government the changes should mean most people would receive more from their super.

One of the most important changes affecting all individuals is ensuring that their chosen fund has their tax file number (TFN). Where this is not provided the individual may be charged a higher tax on contributions and their fund may not accept some types of contributions.

The responsibility falls to both the employer and employee to ensure the super fund has the TFN. Employers that do not pass on the TFN to the employee’s fund may face penalties from the Government.

Employers must give the TFN to their employee’s fund by whichever is the later of the following:

  • for new employees – when the employer makes the first contribution for them
  • for existing employees – when the employer makes the next contribution for them
  • within 14 days after receiving the employee’s Tax file number declaration (NAT 3092) form.

Employers not making employee contributions, as would be the case where the employer pays their employee less than $450 in a calendar month, are not affected by these changes.

Below is an outline of other key changes as they affect employers, those currently working and those retiring or planning to retire.

Key super changes for employers

The super changes most relevant to employers include:

  • Employers can claim a full tax deduction for all employer contributions, or before-tax contributions, to super for staff who are less than 75 years of age. The self-employed may also be able to claim a full tax deduction for their personal superannuation contributions
  • Eligible termination payments will change to employment termination payments.
  • The reasonable benefit limits (RBLs) will be abolished. Employers will no longer have to report payments made after 1 July 2007 for RBL purposes. Employers will only have to report eligible termination payments over $5,000 paid up to 30 June 2007. The deadline for this reporting is 14 July 2007.
  • Pay-as-you-go withholding eligible termination payment summaries, statements and associated schedules will be updated in line with the changes.

There will be no changes to the employer’s super guarantee obligations. Employers must continue to make super contributions of at least nine per cent of each employee’s earning base to their chosen super fund.

Key super changes for individuals currently working

Super changes relevant to those currently in the workplace include:

  • Making before-tax contributions of up to $50,000 a year (indexed) into super accounts is allowed.
  • If 50 years of age or over, the before-tax contribution limit is $100,000 a year between 2007–08 and 2011–12.
  • Making before-tax contributions is allowed up to the age of 75 – this applies to both the employer and employee.
  • If under 65 years of age, after-tax contributions of up to $150,000 a year (indexed) can be made. These contributions can be ‘brought forward’ paying $450,000 in one year provided nothing is paid in the following two financial years.
  • If aged between 65 and 74, at least 40 hours within 30 consecutive days must be worked in a financial year to make contributions. Tax penalties apply for going over these contribution limits.
  • Up to $1m in after-tax contributions can be made into a super fund between 10 May 2006 and 30 June 2007. This is only a temporary opportunity, from 1 July 2007 the new contributions caps will apply.
  • A request can be made to release money from a super fund if more than $1m has been contributed between 10 May and 6 December 2006. A request to release funds must be lodged on, or before 30 June 2007.
  • If moving super to another fund a standard form, which will be accepted by all super funds, can be used. Funds will have up to 30 days to action requests.
  • If eligible for the super co-contribution, all after-tax contributions up to $1,000 qualify for the super co-contribution. From 1 July 2007, those self-employed may also be eligible for the super co-contribution. The super co-contribution is indexed, means tested, and is not available to higher income earners.

For those retiring

Key super changes relevant to those retiring, or planning to retire, include:

  • If 60 years of age or older super benefits are tax-free if they are paid from a taxed source.
  • An income tax return for the 2007-08 financial year need not be completed if 60 years of age or older, and the only income received is that of super from a taxed source.
  • Savings can be kept in super indefinitely as there are no compulsory cashing out rules.
  • If drawing on a fund the super pension must pay a minimum amount based on the recipient’s age and account balance.
  • Employment termination payments cannot be rolled over into super.
  • Transition to retirement income stream payments in a year must be less than ten per cent of the super account balance (at the beginning of the financial year).
  • A lump sum payment, under transition to retirement, cannot be taken.
  • The Government pension asset test taper rate has been changed, effective 20 September 2007, meaning more people may be eligible for Government pensions such as the Age Pension.

For more information, please contact this office.

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