Date of article: May 2006
Last updated: N/A

Budget 2006 superannuation proposal

"There would be no tax on a lump sum. There would be no tax on superannuation pension."

The Government announced in Budget 2006-2007 the proposed plan to change the superannuation system in Australia from 1 July 2007. The plan is to simplify and streamline superannuation by removing the complexity and tax payable when superannuation benefits are cashed out. The following are the proposed changes:

Benefits payment

• All payments from a taxed super fund* to a person are tax free after age 60 (applying from 2007)
• Tax would still apply on benefits paid to a person aged less than 60
• Reasonable Benefit Limits would be abolished
• No requirement to draw down on their superannuation (work test and time limits would be abolished)

Contributions and earnings

• Aged based limits would be abolished
• Self employed would be able to claim a full deduction for their superannuation contributions
• New contribution limit of $50,000 (with a transitional period for people aged 50 and over). 15 per cent on $50,000 per annum limit with top marginal rate on excess
• Undeducted (i.e. post tax) contributions limited to $150,000 per annum (with transitional rules)
• Age limit for deductible contributions extended to 75 years

What will not change

• Earnings on contributions will continue to be taxed at a maximum of 15 per cent. This rate can be reduced through the application of capital gains discount or imputation and other credits

* Taxed super funds are funds that paid tax on contributions and earnings. A self managed super fund that is a complying fund is a taxed super fund.