The Tax Office says it has identified some areas of confusion about the new superannuation reforms. It has published several myths, facts and tips (which will be regularly updated) to help taxpayers better understand the changes to super. One myth is that, until 30 June 2007, individuals can borrow $1 million to put into their super and claim the interest as a deduction. But the ATO says the fact is that interest is not deductible for individuals.
In a recent address on building competitive advantage, the Tax Commissioner said the Tax Office's primary emphasis in the large corporate sector is on supporting voluntary compliance and reducing compliance costs, rather than on revenue collection activities. The Commissioner said the following issues are on the Tax Office radar for 2007-08:
corporate restructures, mergers and acquisitions
financing arrangements including the use of hybrid securities
companies whose tax performance is at odds with economic performance
transfer pricing issues
In an address in Canberra, Labor Leader Kevin Rudd promised to streamline and simplify regulation affecting business. Among other things, he said Labor would implement BAS Simplification as outlined in the Banks Report, and, in consultation with small business, develop a new policy called "BAS Easy". Mr Rudd said Labor was also currently considering giving relief to independent contractors and home-based businesses by raising the threshold for mandatory completion of the BAS from $50,000 to $75,000.
The measure changes the tax rules for resident taxpayers who cease full-time education for the first time. Students who cease full-time education for the first time will be entitled to the standard tax-free threshold of $6,000 that applies to all resident taxpayers. The measure will be applicable to assessments for income years commencing on or after 1 July 2006.
How will superannuation benefits be taxed from 1 July 2007? For most people aged 60 or over who receive super benefits from a taxed source (this is most funds) that payment of a benefit as a lump sum, or income stream (such as a pension) will be tax-free. I am a retired public servant. Will my superannuation pension be tax-free? No. The benefits of many retired public servants are paid from superannuation schemes that don’t pay tax or from a Government’s revenue. These sources are sometime called untaxed sources. If your super benefit comes from an untaxed source, it will be taxed when you receive it regardless of your age. However, if you are aged 60 or over when you receive a superannuation pension, you may be entitled to a 10% tax offset that will reduce the tax payable. The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made. Will I have to lodge an income tax return? When you are 60 years or over, you don’t have to declare tax-free income paid from taxed sources of superannuation. If your only source of income is superannuation benefits from a taxed source you won’t need to lodge an income tax return. You will have to lodge an income tax return if you have income from other sources, including from investments or untaxed superannuation sources, such as some public service super funds. Is there a minimum or maximum amount I have to withdraw from super each year? Your fund may allow you to choose the amount of your superannuation income each year. Once you start a pension, a minimum amount is required to be paid as a benefit each year to ensure your capital is generally drawn down over time. There is no maximum amount other than the balance of your super account. The following table shows minimum annual pension for each age group: Age Minimum withdrawal as a % of the account balance Under 65 4% 65–74 5% 75–79 6% 80–84 7% 85–89 9% 90–94 11% 95 or more 14%
The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.
Do I have to cash out my super when I reach a certain age?
No. The superannuation law will no longer require your benefit to be paid at a certain age. However, your payments are subject to the rules of your particular fund. The requirements for compulsory payment of benefits to members over age 65 who do not meet the work test, and compulsory payment from age 75 have been removed from the law.
The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.
What is happening to reasonable benefit limits?
Reasonable benefit limits will be abolished from 1 July 2007. You will still need to include amounts exceeding your reasonable benefit limit as excessive amounts in your tax return for benefits received before 1 July 2007.
Do “transition to retirement“ measures still apply?
Since 1 July 2005 people at ‘preservation age’ have been able to take their benefits as a non-commutable income stream while they are still working.
The transition to retirement rules will be amended to include pensions meeting the new minimum standards. From 1 July 2007 transition to retirement income streams will allow no more than 10% of the account balance (at the start of each year) to be withdrawn in any one year. The existing non-commutability rules for income streams commenced under the transition to retirement measure will continue to apply. Income streams started before 1 July which comply with the transition to retirement rules at the time, will satisfy the new requirements.
The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.
When can I start taking my superannuation?
When you reach preservation age and retire, or turn 65, even if you have not retired from the workforce, you can access your superannuation. The ‘preservation age’, however, will increase from 55 to 60 between the years 2015 and 2025.
Will the new rules affect complying income streams started before 1 July 2007?
No, you still won’t be able to commute them into a lump sum. The payments will be tax-free when paid from a taxed source to a person aged 60 or over.
There are a number of issues and opportunities you might need to consider during the transitional period between 10 May 2006 and 30 June 2007. What is the $1 million transitional cap on non –concessional contributions? There is a cap of $1 million on non-concessional contributions during the transitional period. This transitional cap includes all non-concessional contributions made between 10 May 2006 and 30 June 2007. What if I exceed the $1 million cap during the transitional period? The rules about excess transitional non-concessional contributions and what you need to do are explained in the fact sheet - Simpler super – transitional cap of $1 million on non-concessional contributions. Do I have to pay capital gains tax (CGT) if I sell my investment property and put the money into super? If the sale of your investment property returns a capital gain you will need to take into account the possibility of paying CGT. Can I transfer my investment property into my self managed super fund? No. You cannot transfer or sell your residential investment property to your self managed super fund. In some circumstances you may be able to transfer real property used exclusively in a business to your self managed super fund. The property must be acquired by the self managed super fund at market value. You may have to pay CGT and the fund may have to pay stamp duty on the transfer of ownership.
Do I have to pay CGT if I sell my managed funds or shares and put the money into super?
If the sale of your managed funds or shares returns a capital gain you will need to take into account the possibility of paying CGT.
Can I transfer my managed funds or shares into my self managed super fund?
Yes, in some cases. For example, you can transfer listed shares and units in managed funds to your self managed super fund if they are listed on the Australian stock exchange (or the stock exchanges of some other countries), or if your investment is in a widely held unit trust. The units or shares must be acquired by the self managed super fund at market value. You may have to pay CGT and the fund may have to pay stamp duty on the transfer of ownership.
Can I claim a tax deduction for interest on a loan if I borrow money to contribute to superannuation?
No. Interest on money borrowed to make personal superannuation contributions is not tax deductible.
I am an employer. Can I claim a tax deduction for interest on a loan if I borrow money to make super contributions for my employees?
Yes. You can claim a deduction for interest on money you’ve borrowed to make superannuation contributions for your employees.
I own a small business. How much can I put into super now?
Under transitional arrangements you can contribute up to $1 million of non-concessional contributions to your super fund between 10 May 2006 and 30 June 2007.
| Contributions of up to $1 million derived from the disposal of certain small business assets can be excluded from the $1 million transitional non-concessional contributions cap,so you may be able to contribute a further $1 million in the transitional period. |
General information about the changes to super coming into effect from 1 July 2007. There are some changes that take effect from 10 May 2006. Will there be a limit on the amount of contributions that can be made to my super funds? Strictly speaking there are no limits to the amounts that can be contributed but practically the change in tax rates above a certain amount creates a limit. It is this practical limit which is referred to in these questions and answers. Will there be a limit on the amount of concessional contributions that can be made to my super funds? From 1 July 2007 the limit on concessional contributions is $50,000 a year for those less than 50 years of age. This limit is called the concessional contributions cap. You will be taxed on concessional contributions over the $50,000 cap at a rate of 31.5%. You can ask your super fund to release money to pay this excess contributions tax. What are concessional contributions? Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a self-employed person. Concessional contributions are usually included in your fund’s assessable income. Concessional contributions and the earnings on them are assessable to the fund. The fund generally pays tax on its taxable income at 15%. I’m over 50, what is my limit for concessional contributions? The limit on concessional contributions is $100,000 a year between 1 July 2007 and 30 June 2012 for those aged 50 or more. You will be taxed on concessional contributions over the $100,000 cap at a rate of 31.5%. You can ask your super fund to release money to pay this excess contributions tax. What happens if I turn 50 during the transition period? If you turn 50 between 1 July 2007 and 30 June 2012 you can also make use of the $100,000 cap. For example, a person turning 50 on 1 February 2011 will be able to contribute $100,000 in the 2010–11 and 2011–12 financial years. Will the concessional contributions cap be indexed? Yes. Indexation of the $50,000 concessional contributions cap will be based on Average Weekly Ordinary Time Earnings (AWOTE), but will increase in $5,000 increments for simplicity. The cap of $100,000 that applies for those aged 50 or more will not be indexed. Will employers still be able to claim a tax deduction for superannuation contributions? Employers will still be able to claim a tax deduction for contributions made on behalf of their employees. From 1 July 2007 there is no limit on the amount an employer can deduct as the age based limits on deductions for these contributions will no longer apply. They will now be able to claim the deduction for employees who are under the age of 75 (increased from the previous age of 70). Employers will only be able to claim a tax deduction for contributions made on behalf of employees aged 75 and over, if those contributions are required under an industrial award, determination or notional agreement preserving state awards. I am self employed. Will I still be able to claim a tax deduction for superannuation contributions? Yes. From 1 July 2007 you will be able to claim a full tax deduction for superannuation contributions made until you turn 75 as long as you meet the eligibility criteria. The age based limits on deductions that currently exist for these contributions will no longer apply. What will be the limit on non-concessional contributions? From 1 July 2007, non-concessional contributions made to super will be limited to $150,000 a year. This is called the non-concessional contributions cap. You will be taxed on non-concessional contributions over the limit at the rate of 46.5%. You must ask your super fund to release money to pay this tax. People under 65 can make non-concessional contributions of up to $450,000 over a three-year period. The non-concessional contributions cap will always be three times the concessional contributions cap.About concessional contributions
About contribution deductions
About non-concessional contributions
What are non-concessional contributions?
Most commonly, non-concessional contributions are the contributions you make for which a tax deduction is not claimed. Unlike employer contributions, the person who makes the contribution is generally not entitled to a tax deduction for that contribution. They are often referred to as undeducted or ‘after-tax’ contributions. The contributions listed below are non-concessional contributions. They include, but are not limited to:
Will there be changes to eligible termination payments?
Yes. From 1 July 2007, eligible termination payments will either be employment termination payments or superannuation benefits. Superannuation benefits are payments from superannuation funds. An employment termination payment is a lump sum payment made in consequence of the termination of employment. The income tax treatment of both types of payments will change. Employment termination payments made on or after 1 July 2007 won’t be able to be rolled over into super unless you meet the requirements of the transitional arrangements.
ASIC has announced that it expects superannuation trustees to disclose the simpler superannuation changes to fund members within a timeframe that allows members to act on the changes. ASIC said it expects trustees to implement good practices and disclose the simpler super changes so that fund members are in a position to use this information and determine whether they need to make any changes to their superannuation arrangements.
n a recent speech, Raelene Vivian, Deputy Commissioner of Taxation, outlined the implications for superannuation funds flowing from the simplified super reforms. Ms Vivian said there are several immediate administrative impacts that must be implemented by all superannuation funds in terms of updating information systems and procedures. From 1 July 2007, Ms Vivian said superannuation funds will need to pay tax at 46.5 per cent on contributions received in the income year for member accounts where no TFN has been quoted.
In response to rising trustee concern, ASFA has produced a Best Practice Paper on Death Benefits in conjunction with the Superannuation Complaints Tribunal. It says the Paper offers trustees a comprehensive and practicable guide to this sometimes vexed area of super fund stewardship.
Regulations have been made to prescribe the 'cents per kilometre' rates for calculating deductions for car expenses for the 2006-07 income year. The rates for non-rotary engines are:
0 – 1,600cc – 58c/km
1,601 – 2,600cc – 69c/km
2,601cc + - 70c/km
The Tax Office says an Adelaide man has been sentenced by the Adelaide District Court to two years and 10 months jail for tax fraud of $323,912. According to the Tax Office, the man pleaded guilty to 18 counts of obtaining a financial advantage by deception, and 6 counts of attempting to obtain a financial advantage by deception. The Tax Office said that, between July 2001 and March 2003, Paterson lodged personal and company activity statements containing inflated GST credits to claim $233,187 in fraudulent refunds.
The Tax Commissioner has announced a 12-month transitional period before application of the Tax Office's reconsidered view of the tax treatment of agribusiness managed investment schemes (MISs). The reconsidered view will apply to arrangements entered into from 1 July 2008. Mr D'Ascenzo said the Tax Office will be writing to industry to seek assistance to identify a suitable case to test in the courts, which it aims to expedite it through the courts.
