With the recent announcement of the 2007 Federal Budget, I felt it would be relevant to focus this article on some of the changes which may affect you and your family. The details below are extracted from the Russell Budget Alert and is only a summary of some of the changes.
Following the abolition of tax on superannuation benefits for those over aged 60, in the 2006 Federal Budget the 2007 Federal Budget had few further changes for investors. The 2007 Federal Budget announced the establishment of a Higher Education Endowment Fund, some personal tax cuts and a number of one-off payments for particular groups, including a one-off bonus for the 2005/06 cocontribution scheme.
Personal Income Tax Thresholds
The Government has announced tax threshold changes to be introduced in two phases. The first phase changes will be effective from 1 July 2007, with the second phase from 1 July 2008.
- From 1 July 2007, the 30% tax threshold will increase from $25,000 to $30,000.
From 1 July 2008, the 40% threshold will increase from $75,000 to $80,000 and the 45% threshold will increase from $150,000 to $180,000.
Low Income Tax Offset
It has been announced that effective 1 July 2007 the Low Income Tax Offset will increase from $600 to $750. It will phase out from $30,000 to $48,750. With the application of the offset, the effective tax-free threshold for low income earners will now be $11,000 versus the normal $6,000 threshold.
Personal Superannuation Changes
The budget announced a doubling of all superannuation co-contribution payments for the 2005-06 year. The vast bulk of additional co-contribution payments will mainly be made to funds prior to 30 June 2007.
This measure will add an immediate boost of $1.1bn to the retirement savings of low and middle income earners (less than $58,000 pa) who previously made after-tax voluntary contributions to their superannuation accounts during 2005-06.
Transitional arrangements for personal contributions
The budget re-announced transitional measures for personal contributions detailed previously on 7 February 2007.
These changes benefit individuals who may as a result of the timing of various Simplified Superannuation announcements inadvertently missed the opportunity to take advantage of transitional arrangements.
For the purposes of making personal contributions before 30 June 2007 there are relaxed rules around satisfaction of the work test for those aged either 64 or 74 at any time between 10 May 2006 and 5 September 2006.
Recent changes to superannuation rules, such as the once-off $1million undeducted contribution which may be made prior to 30 June 2007, and the changes announced in the 2007 Federal Budget provide even greater opportunities for effective financial planning. You are strongly urged to review your personal circumstances with your Financial Adviser to understand how best you can benefit from these opportunities. This article was submitted by Richard M Hill CA(SA), of Taurus Financial Services and who is an Authorised Representative of Professional Investment Services, Licensed Number 234951.
Acknowledgement to Russell Investment Management Limited is made for the source of the material.