Grant Chapman (SA, Liberal Party) Share this | Hansard source

The legislation that we are debating today, the Superannuation Legislation Amendment (Simplification) Bill 2007 and a raft of related bills, implement the Howard government’s groundbreaking reforms to superannuation. These bills simplify superannuation arrangements for retirees and make the provisions for superannuation much easier to understand. They improve the incentives for people to work and save and they introduce greater flexibility in how superannuation savings can be drawn down in retirement.

In introducing these major superannuation reforms, the Howard government is significantly improving the adequacy of retirement incomes. The raft of bills that we are debating today simplifies the current complex tax arrangements with regard to superannuation and removes restrictions that have previously applied to superannuation benefits. The bills provide retirees with much greater flexibility as to how and when they draw down their superannuation benefits. More than 10 million Australians with superannuation accounts, in addition to the many future account holders who will establish superannuation savings in future years—in many respects as a direct result of the incentives that this legislation introduces—will benefit significantly through these reforms.

To summarise some of those very important reforms: firstly, there is the abolition of the reasonable benefit limits so that there is now no limit on the amount of capital that a person can accumulate through superannuation or put into a superannuation fund. The age based contributions whereby a person can make a contribution to a superannuation fund that is tax deductible and have that taxed at 15 per cent in the superannuation fund, which previously varied according to age, is now set at a flat rate of $50,000 per year irrespective of age.

In addition to that, people under this legislation are able to make an undeducted or after-tax contribution now limited to $150,000 per year. Previously, undeducted contributions were unlimited; people could put as much after-tax capital into superannuation funds as they chose and were able to do. But these measures place an annual limit on that of $150,000, or you can put $450,000 in on one occasion and then not make any after-tax contribution for three years. That ensures an element of fairness with regard to superannuation savings.

Importantly, this legislation ensures that, as from 1 July next year, once a person turns 60 years of age there will be no tax on the benefits they draw down from their superannuation fund. Whether those benefits are drawn down in the form of a regular pension, in the form of a lump sum or through a combination of those there is no tax on the benefits drawn down from a superannuation fund. This is an amazing and major reform to superannuation. Importantly, the provisions made for transition to retirement mean that people can keep working part-time as they approach retirement age and make contributions from their earnings into a superannuation fund, and gain the tax advantages of that for their retirement savings purposes, but at the same time draw down their superannuation either in lump sum form or by way of pension on a tax-free basis. That is a very significant reform among the major reforms under this legislation.

Also, until 30 June this year people can make a one-off contribution of $1 million to their superannuation fund. As I mentioned previously, under the existing regime there was no limit on the after-tax contributions that people could make to a superannuation fund as part of their transition to retirement. Quite fairly, the government in this legislation has allowed a $1 million limit up to 30 June this year, which takes account of that and of the subsequent introduction of the $150,000 per year limit on undeducted contributions. They are very important initiatives.

But one of the most important initiatives with regard to this legislation is the provision that has been made for small business, and I want to focus some remarks on that particular benefit. Small business owners for a long time have been amongst the most enthusiastic supporters of superannuation, particularly in the form of self-managed superannuation funds. The fundamental logic of their enthusiasm is easily understandable. Many people decide to set up their own businesses to ensure their independence, and it is the same motivation that encourages many of them to establish their own self-managed superannuation fund. Under this legislation the link between small business and self-managed superannuation funds, I believe, will become even closer through 2007 and beyond because of the way in which this legislation makes superannuation simpler and more tax effective. It is only one of the many changes that this legislation initiates. It is a policy initiative of the Howard government which this legislation introduces and I want to focus on it today, because the small business sector is of great importance to our economy and to our community.

One of the changes in relation to small business is to allow full tax deductibility for personal contributions made by self-employed business owners as compared with employees of incorporated businesses. No longer does a small business owner have to be the employee of their own incorporated business; they can be in a partnership or some other business ownership structure and as a self-employed person can now gain full tax deductibility for their contributions to super up to that $50,000 per year limit. That is a very important reform as far as small business people are concerned.

But the most important reform, I think, is the exclusion from the annual cap on undeducted superannuation contributions of the proceeds from the sale of small business assets or farm assets that qualify for the standard small business capital gains tax exemptions up to an indexed lifetime limit of $1 million. That applies in addition to the annual cap on undeducted contributions of $150,000 a year or $450,000 on a three-year cycle. This is a very important reform for small business. I welcome its introduction. It was not part of the original package announced in last year’s budget, to which this legislation by and large gives effect. It was an initiative taken during the refinement and consultation process of this legislation. It is an issue that I raised very strongly in the government members Treasury committee and I welcome the fact that the Treasurer finally acceded to including this as part of the package. It is a very important initiative.

It means that when a small business person retires and sells the business for the purpose of retirement they can put in $1 million of the proceeds of the sale of the small business as an after-tax contribution, and if it is a husband and wife business then obviously they can put $1 million each into that fund in addition to the $450,000 on a three-year cycle. So it does make a substantial difference to small business and I think it is an important initiative

Debate interrupted.