An Australian Budget that makes not-working even More attractive
In the May budget, the Australian Treasurer announced the intention to allow people aged between 67 and 74 to make non-concessional or salary sacrificed superannuation contributions without meeting a work test, subject to existing caps. In itself it didn’t sound such a big issue, didn’t it just mean that Australians who came into a little bit of money who are aged over 67 and previously couldn’t put the money into superannuation unless they were working now could?
Yes, on the face of it that was it, however there are two potentially large tax saving areas that now become available to Australians aged over 67. And their dependants.
Currently, if you have a UK based pension that you wish to transfer to Australia and you are let’s say 65 or over and the amount to be transferred exceeds the Australian contribution caps, then once you hit 67, it’s back to work or no transfer can occur. The proposal means that you will have up to age 74 to undertake your UK pension transfer, without having to go to work!!
The taxable component of Superannuation monies that is passed to non-financially dependant beneficiaries is subject to tax. To counter this tax impact, a tried and tested strategy known as “re-contribution” has been used to reclassify the taxable component to be non-taxable component. There are limitations to this strategy that centre on non-concessional contributions caps AND the work test. That is, if you are over the age of 67 under the current rules you could not use the strategy. The proposed changes will mean that you can employ this tried and tested strategy up to the age of 74, potentially savings your beneficiaries thousands of $’s in tax.
The change to the work-test rules and the impact as described above are complex in nature and should be considered carefully in line with your own circumstances, and, in our opinion, with expert guidance. Please contact our Australian office if you would like to explore these issues further. Dave Stone
Managing Director - Alexander Beard (Australia) (PTY) Ltd.