Amalgamation is Super!

From July 1 ’07 various components of your super fund will be restructured. From this date, superannuation and income stream benefits will comprise two components: tax free and taxable. The following components will merge to form the tax free component: Undeducted; Pre-July 1983; CGT Exempt; post-1994 Invalidity and Concessional.

If you’re planning to access super benefits prior to age 60, there’s a clear incentive to maximise this new tax exempt component. Unlike those over 60 (who’ll be eligible for tax free payments from super regardless of component composition), tax will still apply to the 55-60 years age group, if their super benefit contains a taxable component.

If you have multiple super funds and Pre-July 1983 employment, there maybe opportunity to maximise your tax free component prior to June 30 this year. Amalgamate a super fund with a Pre-July 1983 eligible service date, with funds that have a later eligible service date - this type of consolidation results in the earliest eligible service date being applied to the combined fund balance. By increasing the Pre-July 1983 component now, you’re increasing the tax free component from July 1. Once calculated, this new component will be fixed and not change in future.

This is also beneficial to those planning to retire after age 60 with non-dependant beneficiaries (ie. adult children). It may assist in reducing the tax payable upon receipt of super death benefits.

The suitability of this strategy will depend on an individual's personal circumstances. While it may sound simple to implement, there could be a number of negative consequences (such as loss of insurance cover)
which may arise if not guided by an expert. So please check your bottom drawer for forgotten super fund statements, then seek advice on whether you should amalgamate your funds… Remember the June 30 deadline is approaching.

Andrea Gedling