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2007 Tax Changes to Superannuation

Changes to the taxation of superannuation, which the Government announced in the 2006 Budget, will come into effect on 1 July 2007. The main change is the removal of tax on superannuation benefits paid from a taxed source to people aged 60 and over.

There will also be a 10% tax offset for people aged 60 and over, whose pension benefits are paid from an untaxed superannuation source.

If you are considering retiring or accessing part of your benefit, you may wish to seek assistance from a financial advisor before lodging your benefit application.

Benefits available to MilitarySuper members are made up of a Member benefit, an Ancillary Benefit and an Employer Benefit. To better understand the impact of the changes it is necessary to understand whether your superannuation is from a taxed or an untaxed source. The following information is intended to provide you with the necessary guidance. Further information on the components of your superannuation is available from the Board's website or the Customer Service Centre on 1300 006 727.

Member Benefit

Your Member benefit is made up of contributions which you have made to the scheme plus the earnings on those contributions. These contributions are paid into the MilitarySuper Fund and invested by the Board. Your Member benefit is paid as a lump sum and is paid from a taxed source unless you are a former Member of the DFRDB Scheme Scheme. For former DFRDB Members the interest accrued on your DFRDB contributions and any pre-1983 Member contributions, will be paid from an untaxed source.

Ancillary Benefit

Your Ancillary Benefit is made up of additional personal contributions, salary sacrifice contributions and/or any transfer amounts, spouse contributions and Government con-contributions which have been made to the scheme. These contributions will be paid from a taxed source.

Employer Benefit

Your total Employer Benefit is based on the formula - Final Average Salary (FAS) x Accrued Benefit Multiple, based on years of service and is made up of taxed (funded) and untaxed (unfunded) components.

  • the taxed part of your Employer Benefit is the contributions made by the Department of Defence to MilitarySuper each fortnight (called a productivity contribution equal to 3% of your fortnightly salary).
  • the untaxed component of your benefit is the total Employer Benefit less the taxed component.

Taxation of Benefits

From 1 July 2007, if you are aged 60 or over at the time you claim your benefit:

  • Lump sums paid from a taxed source will be tax-free.
  • Any pension paid from a taxed source (i.e. if you convert the productivity amount to a pension) will be tax-free.
  • Lump sums paid from an untaxed source (i.e. your untaxed Employer Benefit) will be taxed at 15% up to a threshold of $1 million and at the top marginal tax rate above this amount.
  • Pensions from an untaxed source (i.e. your untaxed Employer Benefit) will be taxed at your marginal tax rate less a 10% tax offset.

From 1 July 2007, if you are aged under 60 at the time you claim your benefit:

  • The taxation treatment of your superannuation benefit will depend upon your age and the nature of your benefit.
  • If you are considering retiring, and/or accessing your benefit you should seek a quote of your entitlements from ComSuper.

Proportioning of Benefits

These changes will affect the amount of tax payable on partial benefit payments. Your tax-free component will now be spread in equal proportions across each benefit payment you receive or preserve.

Contributions

The tax changes set a cap on the amount of contributions you can make without incurring additional tax.

The cap on concessional contributions (these are known as concessional contributions, for example, taxed employer contributions and salary sacrifice contributions) across all your superannuation Funds is:

  • $50,000 per year, or
  • a transitional limit of $100,000 per year for five years (financial year 2007-2008 to 2011-2012) for members over age 50 on or after 1 July 2007

(Note: we are required to deduct tax at the top marginal tax rate from these contributions if we do not have your Tax File Number)

The cap on non-concessional contributions

  • $150,000 per year,
  • $450,000 over three years for members under 65. For example, $300,000 in year 1, $100,000 in year 2 and $50,000 in year 3.

(Note: we cannot accept these contributions if we don't have your Tax File Number).

Contributions above these caps will be taxed at the top marginal tax rate plus the Medicare levy.

Tax File Number (TFN)

It is not compulsory to supply your TFN but from 1 July 2007 if MilitarySuper does not have your TFN:

  • we will not be able to accept your non-concessional contributions (known as non-concessional; these are Member and additional personal contributions),
  • your employer may choose not to pay productivity contributions,
  • you will be taxed at the top marginal tax rate at the end of the financial year on any concessional contributions (known as concessional contributions; these are productivity and salary sacrifice) that are made, and
  • you may pay a higher rate of tax when you withdraw your benefit.

If your annual Member statement indicates that you have not supplied your TFN and you have not already done so, you should speak to a customer service representative on 1300 006 727.

Reasonable Benefit Limits (RBL)

RBLs for superannuation will be abolished.

Other Sources of Useful Information:

If you are considering retiring, and/or accessing your benefit and you require financial advice, you will need to seek assistance from a financial advisor.

For more information on the tax changes, please visit The Treasury's Simplified Superannuation page
For press releases concerning the tax changes by Assistant Treasurer, The Hon Peter Dutton MP, please visit the Assistant Treasurer's page.

Examples

Once you have read the Simplified Superannuation update, you may find the following examples on how how benefits may be taxed at different ages useful. For further information on how your benefit may be taxed from 1 July 2007 we suggest you read the fact sheets containing information on the superannuation changes for preserved benefit members or for contributing members.

Under 55

Aged 55 to 59

Aged 60 and Over

If you are considering retiring, and/or accessing your benefit you should seek a quote of your entitlements from ComSuper. Quotes that take into consideration the new tax changes may only be obtained from ComSuper after 1 July 2007.

You may wish to consider obtaining professional advice about your particular circumstances before making any financial or investment decisions.

Detailed information is provided in the Winter 2007 Mid-year Member updates for both Contributing (PDF, 229KB) and Preserved (PDF, 229KB) Members.

More Information

Forms and Fact Sheets

PDFs can be viewed and printed using the FREE Adobe Acrobat Reader.