Superannuation from 1 July 2009

Further significant changes were made to superannuation from 1 July 2009.

Contribution cap reductions

The concessional contributions cap will be reduced from 1 July 2009 from $50,000 to $25,000.  The transitional cap (in place until 2012) for individuals over 50 will also be halved from $100,000 to $50,000.  This cap includes salary sacrifice, employer contributions and deductible member contributions.  Individuals who salary sacrifice should reassess their arrangement to ensure their contributions do not exceed the new limit.  Individuals whose employers contribute more than the minimum 9% should also consider whether the threshold will be exceeded at current contribution levels.

The non-concessional contributions cap will remain at $150,000 per annum or $450,000 over 3 years.  It will remain linked to the concessional contributions cap but is now calculated as six times the level of the concessional cap.

Significant penalties apply where the caps mentioned above are exceeded.

Contributions in excess of the non-concessional cap will be taxed at 46.5%. The excess contributions tax must be paid from your superannuation member account.

Contributions in excess of the concessional cap will be taxed at a penalty rate of 31.5% in addition to the 15% contributions tax. The excess contributions tax may be paid from your personal funds or from your superannuation member account.

Reduced minimum income stream payments

For the 2009/10 year the minimum income stream payment has temporarily been halved in each age category. 

The updated percentage factors are as follows:

While members must take at least the minimum payment each year, with the exception of Transition to Retirement Income Streams there is no maximum limit imposed.

Government Co-contribution

Both the employed and self employed who make after tax, personal contribution to superannuation are entitled to the government co-contribution. The actual co-contribution amounts will be different under the new arrangement until 2014/15 when the rate and maximum amount will return to the 2008/09 level. The current and adjusted rates are as follows:

Changes to superannuation income tests

From 1 July 2009 reportable employer super contributions will be included in superannuation income tests for Spouse superannuation contributions tax offset, Government super co-contribution and Deduction for personal superannuation contributions.

Reportable employer super contributions are salary sacrificed super contributions or other contributions your employer makes to a super fund on your behalf that are additional to the minimum contributions they must make under super guarantee law, an industrial agreement, the trust deed of the fund or a federal, state or territory law.  From 1 July 2009 reportable employer super contributions will be disclosed on annual payment summaries and reported to the Taxation Office by your employer.

Planning issues to consider

Transition to retirement income stream

Reaching your preservation age (currently age 55) allows you to access your superannuation funds via a Transition to Retirement Income Stream (TRIS).  A TRIS can be used to supplement your income if you wish to reduce the hours you work. It can also enable you to reduce the tax you pay and increase your retirement savings by continuing to work full time and salary sacrificing more heavily into superannuation while maintaining your net income.

Transitional concessional contribution cap

The transitional concessional contribution cap of $50,000 is available for members over age 50 until 30 June 2012.  This limit applies if you are 50 at any time during the financial year. The government may continue to change the contribution caps in the future.  Therefore full advantage should be taken of the higher caps while they are available.

Contributions after age 65

By continuing to meet the work test (working 40 hours in a 30 day period) after the age of 65 you may continue to make contributions to your fund.

The 'three year' cap

A “three year” cap of $450,000 applies if a member wants to bring forward two years of future non-concessional contribution entitlements.  The member must be 64 or under at 1 July of the year when this “bring forward” is triggered.

Superannuation components and proportioning rule

From 1 July 2007 there are now only two components of super interests, being tax-free and taxable components and the components of a benefit paid are calculated under the proportioning rule.  This rule requires that the benefit be paid in proportion to the total taxable and tax free components of the entire member balance.  In general the taxable component consists of concessional contributions and fund earnings prior to income stream commencement and the tax free component consists of non-concessional contributions made since 1 July 2007 plus the crystallised component calculated at 30 June 2007.

The taxable and tax free components are determined just before a lump sum benefit is paid and when an income stream commences.  Once an income stream has commenced the proportions stay in place during the life of the income stream.

These components determine the taxation payable when a benefit is withdrawn by the member.  The tax free component is always excluded as it is not assessable income in all cases.  The taxable component is also excluded if the member is over age 60.  If the member is under age 60 the taxable component of an income stream payment is taxed at marginal tax rates.  A 15% offset applies if the member is aged between preservation age and 59.  For the taxable component of a lump sum withdrawal where the member is aged between preservation age and 59 no tax is payable up to the unused low rate cap amount (currently $150,000) and anything above this at a maximum rate of 15% plus medicare levy.  The taxable component of a lump sum withdrawal prior to preservation age is taxed at a maximum rate of 20% plus medicare levy.

Re-contribution strategy

Prior to retirement you may wish to use the recontribution strategy to boost the tax free component of your member balance.  The strategy involves withdrawing a portion of your superannuation as a lump sum then recontributing the balance back as a non-concessional contribution.  Careful consideration needs to be given to the tax implications of this strategy prior to implementation.

Preservation rules

The preservation rules restrict access to your superannuation until certain conditions are satisfied.  Generally your member benefits are preserved benefits ( must be kept in the superannuation system for your retirement) or non-preserved benefits (which you can access at any time).  Since 1 July 1999 all contributions to your superannuation account and all income earned are preserved benefits.

A member’s preserved benefits can only be accessed if one of the following conditions of release is satisfied:

	reach your preservation age and permanently retire from the workforce
	reach age 60 and leave an employer on or after that age
	reach age 65
	become disabled or die
	hold a temporary resident visa and permanently depart Australia
	stop working with your employer and the value of your benefit is less than $200

Estate planning considerations

Superannuation benefits paid to a member after they reach age 60 are tax free.  Lump sum death benefits continue to be tax free if paid to a dependant.  The definition of a dependant is defined by the Tax Act and includes a spouse, a child under 18, a financially dependent child between 18 and 25, a financial dependant (other than a non-disabled child over 25) and an interdependent person.

Under the superannuation laws the taxable component of a lump sum paid to a non-dependant will be taxed at 15% plus medicare levy even though the member may have turned 60 and have been eligible to withdraw the money tax-free during their lifetime.

If a member aged over 60 were to make a withdrawal from their superannuation fund and give it to their adult children before they die the funds would be passed on tax free.

There is, therefore, a need to continue to consider appropriate strategies and obtain ongoing Estate Planning advice.

Published : August 2009