Boost Super Now – Maximum Limits Pensioned Off

Written By Russell Tym, Authorised Representative of MoneyLink Financial Planning, AFSL No 247360

The Federal Budget made dramatic changes to the superannuation rules. The overall effect will be to make super even more attractive than it already is. It is now more important for working people to take advantage of the opportunities available before June 30.

The biggest change is that super payouts will be tax free for those over sixty years from July 2007 on. This includes both lump sum withdrawals and retirement income streams.

Already income streams are quite tax sheltered with the earnings within the pension fund tax free. Part of the payments to the retiree are also usually tax free, the balance is taxable but with a 15 per cent tax credit attached. Now all the income will be entirely tax free.

From next year the maximum limits a person can accumulate in superannuation will also be pensioned off. There will no longer be any limit on the size of super balances. However there will be limits on the annual contributions allowed.

Overall super looks very enticing – build up a really big lump in super until age 60, then live tax free for ever.

The government co-contribution scheme is an excellent way for many employees to boost their super balances. It can give an instant return of 150 per cent with the Government putting in $150 for each $100 the employee puts in.

Employees earning less than $28,000 per year qualify for the top rate. If they contribute $1,000 to super from their after-tax pay the government will put in the $1,500 maximum to go with it. Smaller contributions will still earn the 150 per cent subsidy.

Those whose annual incomes are between $28,000 and $58,000 qualify for a reduced rate government co-contribution. For example people earning $38,000 receive a 100 per cent subsidy - $1,000 for $1,000. Those on $48,000 per annum receive a 50 per cent co-contribution - $500 for $1,000.

Any employee eligible for the scheme should put in whatever they can afford before June 30. Lower income people may not be able to afford very much but even $100 is worthwhile.

The simplest and most painless way to put in $1,000 per year is to arrange an automatic payment of $20 per week to go in from your pay with your employer contributions. It must come from after-tax pay however.

Self-employed people should also now be looking at how much they can afford to contribute, with tax deductions in mind. They are entitled to claim deductions for the first $5,000 they put in plus three-quarters of any extra amount.

It is important to estimate what your taxable income for the year looks like being. This will assist in calculating the deductions you need and what you can afford to put in.

Those under age 35 are entitled to a maximum deduction of $14,603. Those aged 35 to 49 can claim up to $40,560 while self-employed people aged 50 and over can claim a maximum deduction of $100,587.

They do not have to earn a high income from their business. For example a person may have sold a property or shares for a large capital gain. A hefty super contribution will mean less capital gains tax to pay.

Another handy scheme involves contributions for a low-income spouse. These can earn a tax rebate (better than a deduction) of up to $540.

The new contribution limits are generous for people many years from retirement. However some very close to retirement will be disadvantaged by the new limits that apply from Budget night.

A maximum of $150,000 of non-deductible contributions can go in per person per year. Anyone without much super and wanting to get large amounts in before retiring can put in $150,000 now, then another $150,000 in July.

Specialist advice would be the best option for anyone retiring shortly who wishes to maximise their super benefits and tax-free retirement income.

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