In a drive to simplify and streamline the superannuation system, benefits tax will be removed on superannuation payments made to people aged 60 and over from July 1, 2007. Reasonable benefit limits (RBLs) have also been abolished.
The government hopes that the removal of benefits tax will eliminate the complexities retirees face when taking their benefits. In addition, because superannuation benefits will no longer be assessable income, there will be an incentive to continue to work while drawing on superannuation, as there will be less tax to pay on work income.
There will also be changes to the pension assets test, which will benefit old age pensioners by reducing the assets test taper rate.
Fringe benefits tax reduced
The fringe benefit tax rate (which generally equals the top marginal personal tax rate plus Medicare levy), declined to 46.5% (from 48.5%) effective April 1, 2006. It is planned for the in-house fringe benefits tax-free threshold to increase from AUD 500 to AUD 1,000 from April 1, 2007.
New contribution rules
A flat AUD 50,000 aged-based contribution limit for under 49-year-olds will be introduced from July 1, 2007. There will be transitional rules for those older than this. In addition, the right to make deductible superannuation contributions will be extended to age 75. Deductible contributions exceeding AUD 50,000 will be taxed at the highest marginal rate. Un-deducted contributions will be subject to an annual limit of AUD 150,000.
Boost to life insurance plans
Under the proposed rules, lump sum death benefits paid to dependants will be tax-free. As RBLs will disappear, it will now be possible to purchase insurance of any amount. However, how these benefits will be taxed if they are paid as a pension is yet to be determined.