Budget Update

The Federal Government has announced various changes to superannuation, including taxation rates on Eligible Termination Payments (ETPs) and remaining reasonable benefits limits (RBLs).

At this stage, these changes are proposals only and have not become law. The following summarises our understanding of these proposals.

We'll let you know when the legislation is finalised.

What about undeducted contributions?
Undeducted contributions will be restricted to $150,000 p.a.
However, the government has advised that members under age 65 may average this amount over three years to allow larger one-off payments.

Who can contribute?
People will be able to make contributions to their super up to their 75th birthday, provided they meet work criteria. This is good news for older people who want to keep working and adding to their super.

Tax File Numbers (TFNs)
Where a TFN is not provided to a superannuation trustee by a member, only the taxable element of a benefit payment would be subject to withholding tax at the top marginal rate, as the exempt component is tax free.

Can members split super with their spouses?
The new rules still allow spouse contribution splitting, but there will be fewer financial benefits to the practice.

Who can claim a tax deduction?
Employees generally can't claim a tax deduction for super contributions.

Of course, salary sacrifice may be another tax effective super option.

Will RBLs still apply?
RBLs, or reasonable benefit limits, won't apply to anyone after 1 July 2007 which will make super much simpler.

Did the death benefits rules change?
Financial dependants will receive the death benefits tax-free; non-financial dependants can only receive death benefits as a lump sum which will be subject to tax.

If death benefits are paid as pensions instead of a lump sum, the age of the person receiving the pension will have tax implications.

Is super still taxed?
Deductible contributions will still have a 15% tax applied. Super funds will also still pay 15% income tax on earnings (we deduct this before earnings reach your RecruitmentSuper account) and 10% Capital Gains Tax.

ETP components
The proposed arrangements would simplify lump sum payments for individuals aged under 60, with the payment being divided into only two components - an exempt component and a taxable component.

When does super stop?
There is now no compulsory exit age for super, so it's up to you! Even better, super withdrawals for the over 60s will now be tax free! Members will be able to choose how much super to take out when, and not have to include it in their tax return (if over 60).

Portability
The maximum 90 days for funds to process a fund transfer request will reduce to 30 days. As we already complete transfers in less than 30 days as standard, this doesn't affect RecruitmentSuper members.

All funds would also be required to use a standard form (including standardised proof of identity checks) for individuals to complete if they wish to directly arrange a transfer request.

Deductible contributions - Employers
Employers will be able to claim a full deduction on super contributions, including Superannuation Guarantee and salary sacrifice, for any employee aged less than 75.

A contributions tax of 15% will apply to all employer contributions (regardless of the number of employers contributing).

Individuals will be taxed an additional 31.5% on any contributions above $50,000, the individual may request a payment from their fund to pay this amount.

The minimum 9% SG contribution still applies until age 70.

What about temporary residents?
People on an eligible temporary resident visa leaving Australia and withdrawing their super benefit before meeting a condition of release will be taxed at 30% on the taxable component.