Australian superannuation reform: Transitional Arrangements

Further to the proposals set out in the 2006/07 Australian Budget (‘the Budget’) to reform the Australian superannuation system, the Australian Treasurer issued a media release on 5 September 2006 (Media Release No 93 of 2006) clarifying the proposed reforms.  This media release was long awaited and addressed three important questions for expatriates planning a return to Australia:

In relation to the AUD $150,000 per annum cap, the Treasurer has confirmed that this annual limit will now commence from 1 July 2007 and people will be able to make up to AUD $1,000,000 in undeducted contributions between 9 May 2006 and 30 June 2007.  The Treasurer also confirmed that people aged less than 65 years old will be able to bring forward 3 years of contributions, enabling AUD $450,000 to be contributed in one year, with no further contributions in the following 2 years.

The treatment of undeducted contributions in excess of the new caps has also been clarified, with the press release stating that while any excess contributions can be accepted into the complying superannuation fund such contributions will be subject to tax at the top marginal rate.  To the extent that individuals have already breached their cap, it is proposed that this can be remedied by having any excess monies returned to the contributor by 30 June 2007.

The roll-over of benefits from non-resident superannuation funds into Australian complying superannuation funds is of particular importance to individuals who have worked outside Australia for extended periods and thus have built up superannuation funds outside of Australia.  It has now been proposed that only the post-residency earnings component of such superannuation funds can be rolled into an Australian complying superannuation fund.  This component will be subject to tax in the hands of the fund at 15%.  The balance of the funds from such non-resident superannuation funds will represent the non-taxable component which can be taken by the Australian tax resident individual tax free, however any rollover of this component to an Australian complying superannuation fund will be subject to the annual caps discussed above.

No draft legislation has yet to be released however the government has indicated that such legislation will be available by the end of this year.

This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances. The authors and consultants expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.