THIS year's federal budget reduced benefits and concessions introduced by the Howard government under the new superannuation system. In addition to decreasing maximum contribution levels by half, the Rudd Government also increased the age pension reduction factor for the income test.
Q When the Howard government brought in the new superannuation rules I sold my house and put the lot into super. I now want to buy a small lifestyle farm on acreage. Can you tell me what the effect on my age pension will be?
A Under the assets test, the value of a pensioner's home on up to two hectares is not counted. This will mean if your farm is on more than two hectares the value of the excess land will be counted and could reduce your age pension. Currently a single home owner can have up to $178,000 of assets, including superannuation, before it affects their age pension.
Q My understanding is that the pension reduction factor under the income test has increased from 40¢ in the dollar to 50¢ in the dollar from September 2009. Is this true and does it affect everyone the same?
A In this year's budget the reduction factor applied under the income test was increased from 40¢ in the dollar to 50¢ in the dollar. This change applies from September 20, 2009. To offset this bad news the Government increased the fortnightly pension for singles by $60 and $20.30 for couples.
In another change, age pensioners can now earn more employment income without it affecting their pension. From September 20 there is a work bonus for age pensioners. Under the bonus, half of the first $500 of employment income is not counted under the income test. People receiving an age pension at September 19 will be assessed under both the old and new rules. If the new rules result in a decreased pension those pensioners will continue to be assessed under the old rules and not have their pensions decreased.
Q I am 47 years old and work for various employers and realise that my concessional limit for super is $25,000. If I receive $75,000 from four employers in this financial year that would make a total of $300,000 and at 9 per cent their contributions would be $27,000. Can you please advise what will happen to this $27,000? I assume the extra $2000 might be taxed at higher rates.
A In the circumstances you have outlined, and as a result of the reduced maximum super contribution levels, you could face excess contributions tax of 31.5 per cent on the $2000 excess plus the contributions tax of 15 per cent. If this happens you can apply to the Tax Office to have the excess contribution disregarded or reallocated to another year. The ATO will only assess applications for excess contributions tax when it can be shown there were special circumstances. It must also be shown that if the tax was imposed it would result in an unjust, unfair or otherwise inappropriate outcome. In the circumstances you have outlined, I believe no relief from the excess contributions tax would be granted.
Q I was not aware that once a super fund is in a pension mode it does not pay tax. Does this also apply to self-funded retirees?
A The tax advantages that apply to superannuation do not apply to other sources of retirement income. Where one is self-funded in retirement outside of superannuation there are no special tax concessions.
Questions can be emailed to max@taxbiz.com.au
