Under the government’s recent Federal Budget proposals it was announced that post-tax superannuation contributions (“undeducted contributions”) would be subject to an annual limit of $150,000, with the limit applying from 9th May 2006. The possibility of an averaging provision over three years to allow for large one-off payments was also signalled.

During June, the Treasurer, announced transitional provisions to apply to the superannuation proposals. The 2005-06 cap of $150,000 will only apply for contributions made between 10 May 2006 and 30 June 2006. Post-tax contributions made between 1 July 2005 and budget night 9 May 2006 will not count towards the cap.

The Government has also announced that it will allow the contribution cap to be averaged over three years to accommodate larger one-off payments. The changes will allow super fund members to make an after-tax contribution of up to $450,000 between 10 May 2006 (the day after the budget night announcement) and 30 June 2006. Further post-tax contributions could not be made thereafter until 1 July 2008.

Alternatively, a person could contribute $150,000 between 10 May 2006 and 30 June 2006 and a further $450,000 between 1 July 2006 and 30 June 2007. Under the latter scenario, no further contributions could be made until 1 July 2009. The Treasurer has since confirmed the proposed averaging arrangements would allow individuals to make lump-sum payments of up to $450,000 every three years, indefinitely.

The annual limit will apply on a “use it or lose it” basis; if a cap is not fully utilised in any year, then the unused amount cannot be credited to a future year. The possible application of the proposed rules is shown in the table below:

The Government is also proposing to bring forward the removal of the payment rules to 10 May 2006 for people aged 65 and over. This would allow people who are over 65 and no longer working and people aged 75 and over to defer cashing their superannuation benefits to take advantage of the new tax regime and flexible draw down rules applying from 1 July 2007.

All of these proposals are, of course, subject to the passing of the legislation to implement the changes.

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