By Michael Houlihan

The Government's introduction of the 'Better Super' system has changed the face of the superannuation environment with 30 June 2008 marking the first anniversary of the new super regime.

With new limits applying to the level of superannuation contributions, now may be an appropriate time to revisit your clients' superannuation strategy.

From July 1, 2007, superannuation contributions have been categorised as 'non-concessional' and 'concessional' contributions:

• Non-concessional (after-tax) contributions, formerly known as undeducted contributions, are those contributions that are not subject to the contributions tax
• Concessional (pre-tax) contributions are those contributions that are subject to the 15% contributions tax.

Non-concessional (after-tax) contribution limits

The contribution limit for non-concessional contributions is $150,000 per annum. The limit can be averaged over three years, so you can make a single lump-sum contribution of $450,000 averaged over three years by bringing forward the next three years' contribution (this will only apply if you are 64 years of age or less). For example, if $450,000 is contributed in the 2007-08 financial year, then another contribution cannot be made until the 2010-11 financial year. As soon as your client exceeds the $150,000 limit in any one year it is assumed that they are using the averaging rules.

Concessional (pre-tax) contribution limits
Concessional contributions are now based on a flat dollar amount per person, per annum. If a client exceeds the applicable concessional contribution they will be required to pay an additional 31.5% tax - on top of the 15% contributions tax.
The contribution limit for concessional contributions is $50,000 per annum for people under 50 years of age. A transitional rule of $100,000 per annum is applicable to a client who turns 50 or above between 1 July 2007 and 1 July 2012, this amount reduces to $50,000 per annum from 1 July 2012. This is subject to the member meeting the work-test of 40 hours in 30 consecutive days where they are age 65 or over but under age 75.

What is important to remember about these new rules is that there will be no limit to how much a person can claim as a tax deduction but there will be a limit on how much of that contribution will be concessionally taxed.

Other points to note are:

• The contribution limits will be indexed each year under new rules at $5,000 intervals.
• Contributions in excess of the limits will be taxed at 46.5%.
• The above limits also apply to self-employed persons who will need to complete the appropriate declaration of claiming a tax deduction shortly after the end of the financial year. 
• Salary sacrifice contributions are classified as concessional but remember that an "arrangement" needs to be in place to salary sacrifice contributions prospectively which includes any bonus arrangements.
• Make sure that Tax File Numbers are provided to the super fund as tax at 46.5% may apply to all contributions.
• The usual gainfully employed arrangements apply for people over age 65.
• No contributions can be made for people over the age of 75.
• To claim a tax deduction the contribution must have been "received" by the superannuation fund in that financial year. Remember, 30 June 2008 falls on a Monday so be careful when you intend to make a contribution to ensure it is "received" by the super fund this financial year.

To provide your clients' with more super strategies download a Superannuation Plain Talk® Guide now.