News
7 March 2007
The Million Dollar Super Window
Dear All,
For a limited time – until 30 June 2007 – you have the opportunity to make after tax contributions of as much as $1million into your super fund. From 1 July 2007 you’ll be limited to annual contributions of $150,000. The million dollar top up is a last minute concession by the Government. It’s particularly helpful if you’re retiring soon and planned to sell off an asset or two and invest the proceeds in super.
See below for full deatils of this opportunity, and for details of our free seminar which we will hold on this topic.
Yours sincerely
Brett Kelly
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North Sydney Office
Level 4, 73 Walker Street,
NORTH SYDNEY NSW 2060
P.O. Box 1794, NORTH SYDNEY NSW 2059
T 02 9923 0800
F 02 9923 0888
M 0419 206 475
brett@kellypartners.com.au
www.kellypartners.com.au
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Central Coast Office
Suite 6, Fountain Plaza, 148 The Entrance Road,
Erina, NSW, 2250
P.O. Box 3616, Erina, NSW, 2250
T 02 4367 6630
F 02 4367 6632
M 0413 933 481
scott@kellypartners.com.au
www.kellypartners.com.au/centralcoast
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Everyone Can Benefit
There are a number of strategies available to investors to ‘cash in’ on this opportunity. Your financial adviser can help you work out whether it’s in your best interests to act now.
Borrowing to contribute
Beg, borrow or steal – well no, not literally, but if you’re willing to borrow money to contribute to super and invest in your own name, there are strategies to consider. Using an interest-only facility may reduce the cost of the loan, and there are also capital gains tax benefits available that would partially offset the nondeductible nature of the interest on any borrowings.
Sell assets and contribute the funds
If you’re planning to make any additional contributions before retirement, now’s the time to consider bringing these forward before 30 June 2007. If you wait, you’ll be subject to the annual caps of $150,000. If, for example, you have an investment property you’re planning to sell to fund your retirement, there may be real benefits to completing the sale now and putting it into super.
Recontributions
From 1 July 2007, the taxation of death benefits will change. Payments in the form of lump sums to spouses and other tax dependants will be 100 percent tax free. However, payments to non-financially dependent adult children will be taxable to the extent that payment contains post 1983 benefits. If you have access to your super now and still have the ability to contribute the funds back, a recontribution strategy undertaken now can partially relieve a future tax burden on your children.
Small business owners
If you’re a small business owner, you qualify for an exemption from the annual contribution limit and you can contribute up to $1million to super over your lifetime (indexed) from the sale of business assets.
Business property owners
If you own business real property you can also contribute up to $1million to super by ‘in-specie’ transferring the property into a Self-Managed Super Fund.
After 30 June 2007
If you’re under 65, there’s another way to get a large amount of money into super after 30 June 2007. The Government will allow you to make three year’s worth of contributions, that’s three times the annual limit of $150,000, or $450,000, provided you don’t try to put any more in for the following two years. It’s a smaller window but it’s worth remembering if you can’t open the big one!
Reasonable benefits now unlimited!
Another significant change proposed by the Government is to scrap the ‘reasonable benefits limit’ that puts a cap on how much you can save in super before it stops being taxed concessionally. Now you can tip as much money as you want into your super with the only ‘limit’ being the $150,000 annual cap for undeducted contributions mentioned previously.
Tax free benefits
At the moment, the tax you pay on the money you withdraw from your super depends on your age, the amount you withdraw and whether you take it as a lump sum or a pension. From 1 July 2007, if you’re over 60, any money you withdraw from a taxed super fund will be tax free! If you’re under 60 when you withdraw money from super, tax will still apply at different rates. How much tax you pay will depend on whether you’ve withdrawn the money as a lump sum or a pension. Under the proposals, if you’re thinking about retiring and you’ve already turned 60, it may be better to delay doing so until after 1 July 2007.
New rules for super pensions
For pensions commencing from 1 July 2007 there’ll be one simple set of rules, requiring a minimum annual payment but no maximum. While there’s no need to actually draw money from super in retirement from 1 July 2007, you could start a pension as the earnings in the pension account will be tax free. And if you’re over 60, the pension payments will be tax free to you as well!
No more compulsory cashing
Prior to Budget night, unless you met certain work requirements, you had to withdraw your super savings at age 65 – or 75 at the very latest. This compulsory withdrawal of superannuation has now been removed. This means your super savings can remain in the system indefinitely, attracting the concessional tax treatment and allowing you access whenever you like after you turn 65.
Simpler deductible contribution rules
You’re currently limited to the amount of deductible (before tax) contributions that you or your employer can make at the concessional rate of 15%. These limits are age-based and overly complex. The rules become simpler from 1 July 2007. From this date onwards, the maximum deduction that can be claimed for a contribution to super is $50,000 per person per year – until you reach 75. The limit applies across all employer, personal and salary sacrificed contributions. If you go over the limit you’ll lose 46.5% of the excess amount in tax. If you’re under 50 this is an increase in the amount of concessionally taxed (15%) contributions you can make each year and another incentive for you to save in super. If you turn 50 between 1 July 2007 and 30 June 2012, a transitional period will apply, allowing you to make annual contributions of up to $100,000, until the end of that period (2011/12).
Super improvements for self-employed
If you receive more than 10% of your income from employment sources and you earn less than $58,000 per year, you currently qualify for a Government co-contribution to your super if you make a personal after-tax contribution. From 1 July 2007, this co-contribution will be available to you if you’re self-employed. And from 1 July 2007, self-employed people can also claim a tax deduction for 100% of all pre-tax contributions up to age 75 (just remember the new contribution limits). The current rules only allow you a full deduction on the first $5,000 then 75% on further contributions – up to your age-based limit.
Super and death benefits
From 1 July 2007 the complex rules around payment of death benefits from super will be simplified. Any lump sum payments to your tax dependants – your spouse, children under 18 and others financially dependant on you – will be tax free. These dependants can also receive benefits in the form of a pension, with the tax treatment dependent upon their age. Non-dependants, such as children over 18 and your estate, can only receive your death benefit in the form of a lump sum. They may be taxed on this payment.
Transitioning to retirement
Previous changes to the super rules, effective from 1 July 2005, allow you to access your super at age 55 without retiring. This is done via a pre-retirement pension. You can receive income from the pension while salary sacrificing to super until you decide to fully retire. From 1 July 2007, if you’re 60 or over, this strategy may be even more beneficial to you as your pension payments will be tax free – and you’d still be able to salary sacrifice. There will however be limitations on how much you can sacrifice.
2007: The year of super
2007 is the year of the super revolution. Through its 2006 Budget proposals, the Government has signalled sweeping changes to the superannuation system, changes that will revolutionise how people prepare for and ultimately enjoy their retirement. Get off to a flying start in 2007 by making an appointment with your financial adviser to discuss the opportunities available to you.
Comment
At the time of writing, none of the Government’s 2006 Budget proposals have become legislation. The Government has introduced their Tax Laws Amendment (Simplified Superannuation) Bill 2006 into Parliament on December 7, 2006. As always, we recommend you speak to your financial adviser and client director about whether these opportunities are likely to help you reach your personal and financial goals.
Disclaimer: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be and we make no guarantee that such information is accurate as of the date it is received nor the date published or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
We provide information to Kelly Partners's clients and associates in the genuine belief that it may provide useful and interesting information relevant to business and personal financial affairs.