FINANCIAL PLANNING FEATURE

The changes to superannuation announced in the 2006 Federal Budget in May will definitely make life easier for all Australians. There are several transitional rules that apply until 1 July 2007 when the official changes take effect.

We have listed some major changes that affect everyone's superannuation and retirement plans.

Major Superannuation Changes

Abolition of Reasonable Benefit Limits - These personal lifetime limits on concessionally taxed lump sum or pension payouts will become a thing of the past. There will be no such limits anymore, complex strategies are no longer needed and you are free to accumulate as much super as you like.
No Tax from Age 60 - Superannuation benefits such as lump sum withdrawals or payments from an income stream investment will be completely tax-free from age 60. This is a huge incentive to save for retirement.
Simpler Payment Rules - A person will no longer be forced to draw down their superannuation once they reach a particular age. You may leave part or all of your benefits in your superannuation fund indefinitely.
Pension Asset Test Taper Rate Halved - The pension assets test taper rate will be halved so that recipients only lose $1.50 of pension per fortnight (rather than $3) for every $1,000 of assets above the relevant threshold. Many more people will be eligible for an age pension.
No rollovers for Eligible Termination Payments - The Government proposed to stop people from rolling over eligible termination payments (ETPs) into superannuation. Transitional rules exist for employment contracts in place on May 9, 2006. These people will still be able to roll over their ETPs until 2012, however, any excess over $1m will be taxed at the top marginal tax rate plus Medicare levy.
Tax-free Death Benefits - All lump sum death benefits paid from a superannuation fund to a dependant will be tax-free or 16.5%^* if paid to a non-dependant.
Simpler Limits to Deductible Contributions - Age based limits for pre-tax contributions to superannuation will be replaced by a $50,000 limit per person per year. Transitional measures allow people aged 50 or more to make deductible contributions of up to $100,000 until 2011/12.
Capped Limits for Undeducted Contributions - Undeducted post-tax contributions have not been limited before. As from 1st July 2007 these will be limited to $150,000 per year per person with the option of aggregating contributions to $450,000 in one year provided they forego their entitlements in year 2 and 3.
Up to $1m of Undeducted Contribution - From 10th May 2006 until 30th June 2007 people can make after-tax contributions of up to $1 million under transitional measures after which the $150,000 cap applies. This way it is possible to sell assets such as a business or investment property and contribute the proceeds into superannuation.
Super more attractive for Self-Employed - If you are self-employed, substantially self-employed or unsupported you now get the full tax deduction up to the full deductible contributions limit. You may also qualify for a Government co-contribution if 10% of your income is from carrying on a business or employment when making personal undeducted super contributions.
Exemptions to Undeducted Contributions Limit - The Government announced that there will be no limit on contributing the proceeds from permanent disability settlements. In addition, there will be a $1m lifetime limit on proceeds from the sale of a small business asset provided they qualify for the small business exemptions.

Now and then - Summary

NOW	THEN - from 1 July 2007
Maximum Fund Size Lump sum RBL = $678,149 Pension RBL = $1,356,291	unlimited no RBLs anymore
Tax-free Lump Sum up to $135,590 excess taxed at marginal tax rate with a 15% tax offset	all tax-free if aged 60
Simpler Payment Rules forced to draw down super if aged 65 or over and not working, or 75 and over	superannuation can be left in accumulation indefinitely (from 10 May 2006)
Pension Assets Test Taper Rate Halved Pension reduced by $3 per $1,000 of assets above the relevant threshold	Pension reduced by $1.50 per $1,000 of assets above the relevant threshold (from 20 September 2007)
Tax on Death Benefits to dependant - tax-free up to deceased's unused pension RBL and excess taxed at up to 46.5%^* to non-dependant - taxed at up to 31.5%^* up to the deceased's unused pension RBL and excess taxed at up to 46.5%^*	all tax-free generally taxed at up to 16.5%^*
Deductible Contributions (pre-tax) up to $15,260 to $105,113 per year based on age up to $100,000 if aged 50 or more and until 2011/12	up to $50,000 per year per person
Undeducted Contributions (post-tax) was unlimited before 9 May 2006 up to $1 million from 10 May 2006 until 1 July 2007	up to $150,000 per year per person or $450,000 for three years
Deductible Contributions for Self-Employed deduction for the first $5,000 75% of balance up to age based limit	100% deductible

(^* including Medicare Levy)

Detailed fact sheets and additional information can be found on the Superannuation Website of the Australian Taxation Office.

Warning

No investment advice is provided to you. This presentation is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information in this presentation is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information in this presentation. The concept and details presented on this page formulate a possible strategy only and require the involvement of various professional experts in their fields. You should seek the assistance of the appropriate experts as explained above.

Equity Resource Financial Planning always consider alternative strategies as part of their financial planning advice which we are happy to provide to you on an individual basis. Equity Resource Financial Planning is an Authorised Representative of PATRON Financial Advice AFSL No 307379.

Strategy today. Freedom tomorrow