The lesser known super changes from 1 July

The big changes to super are extremely well documented. Tax free benefits from 60, undeducted contribution limits abolition of RBL's, etc, etc. We've heard these 1000 times already! However, there are some changes to super which aren't as well known. I will attempt to uncover a few of these (although like everyone else, I'm still wading through all the info out there).

1. One off contributions for 65 year olds.

The contribution rules to super mean that you must satisfy the 'activity test' (gainful employment of 40 hours over a 30 day period during that financial year) to contribute to super if you are aged 65 or over, with no contributions allowed at all if you're 75 or over. However, because there was some initial confusion from Budget night about what the limits were going to be, the Government has decided that if you were aged 64 or younger on 10 May, 2006, you are able to contribute up to the $1 million limit. Good news for all those 65 year old readers out there (yeah, I know there's a heap of you!).

2. One deductible contribution limit.

The new rules mean everyone will have a limit of deductible super contributions of $50,000 per annum (or $100,000 for the next few years if you're aged over 50). In the past there was a loophole in the system, where you could salary sacrifice into super up to your aged based limit, reduce your salary to less than 10% of your total income (ie you also have significant investment income and/or capital gains), and then make deductible contributions up to your aged based limit. Meaning you're claiming two lots of concessionally taxed contributions. Unfortunately, this rule is now gone. $50,000 is it!

3. Cashing out of super comes from all components.

A common pre-retirement strategy is to cash out part of the taxable components of your super (currently called pre/post 1983 components) and re-contribute these funds as an undeducted contribution. This makes your retirement income stream more tax effective, as more of it is returned to you tax free. Come 1 July, the effectiveness of this strategy is diminished. As pensions for those aged over 60 will be tax free anyway, there will be no immediate tax saving. However, death benefits paid from the taxable components to non-dependants will be taxed at 15%, so for estate planning purposes, the strategy is still relevant. The problem is, unlike currently, where you can nominate where your withdrawals will come from, as at 1 July, you will have to withdraw from equal proportions. Therefore, if your superannuation is made up of 50% taxable, and 50% tax exempt components and you want to withdraw $100,000 worth of taxable benefits, you will have to make a total withdrawal of $200,000.

This is fine if you have a small super balance. You simply withdraw it and then recontribute it. But the $150,000 contribution limits (or $450,000 over 3 years) must not be forgotten. The last thing you want is to withdraw the funds, then not be able to put them back in, just to save your non-dependant children a few bucks (this is a sore point of mine that I will approach in another post).

There you go. A few of the lesser known (and possibly not quite as exciting) changes to super from 1 July 2o07.