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Taxation give and take
Federal Treasurer Peter Costello surprised the superannuation industry last month, delivering the removal of the so-called withdrawals tax combined with an array of other key changes.
The removal of the withdrawals tax caught the superannuation industry unaware in circumstances where most spokespeople had been lobbying hard for the abolition of the 15 per cent contributions tax.
The move effectively puts paid to the notion that superannuation is taxed three times.
In what he described as a “simplification and streamlining” of the superannuation system, Costello announced a removal of the benefits tax on superannuation for people aged 60 and over from July 1, next year, plus abolition of the reasonable benefits limits (RBLs).
The Government’s changes also extend access to the co-contribution regime to people who are self-employed.
Commenting on his superannuation Budget initiatives two weeks’ later, Costello said the measures had effectively made superannuation one of the best possible investment options for Australians.
Costello said, under the Government’s plan, people who had already paid tax on their superannuation contributions and earnings would not pay tax on their superannuation benefits from July 1, 2007.
He claimed removal of benefits tax would sweep away the complexities retirees faced when taking their benefits and, because superannuation benefits would no longer be assessable income, there would be an incentive to continue to work while drawing down on superannuation, as people would pay less tax on their work income.
Costello said the plan would also abolish RBLs, introduce new streamlined rules for contributions, and give individuals greater flexibility as to how and when they wish to draw on their superannuation in retirement.
He said the ability to make deductible superannuation contributions would also be extended to age 75. The self-employed would be able to claim a full deduction for their superannuation contributions, and be eligible for the Government co-contribution for their personal post-tax contributions.
As part of the superannuation reforms, there would also be changes to the pension assets test, which would benefit age pensioners. The assets test taper rate would be reduced from $3.00 to $1.50 per fortnight, with effect from September 20, 2007. A pensioner’s home would remain outside the assets test.
This would allow a single retiree homeowner to have around an additional $165,000 in assets before losing the age pension, while a couple could have around $275,000 in additional assets before losing the age pension.
AUTHOR
Mike Taylor
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