Deloitte Tax and Superannuation Partner, John Randall, says that today’s draft legislation on superannuation reforms means that people will need to be on their guard when making contributions because the new proposals change the way undeducted contributions are treated.

“The proposals will mean that undeducted contribution averaging will be imposed in certain cases and will no longer be a matter of choice by the individual,” Mr Randall said.

This draft legislation will automatically impose three-year averaging where ‘non-concessional’ contributions exceed the annual $150,000 cap.

“If a person contributes $150,001 during the year ending 30 June 2008, the averaging provision will automatically operate so that only $299,999 can be contributed over the following two tax years.

“However, if the individual had an option to average, they could have elected to pay the excessive contribution tax (at 46.5%) on the $1 excess and be eligible to contribute up to $450,000 in the following year.

“These subtle changes mean that people need to be careful when they make contributions and, in particular when transferring assets as contributions, as the asset will be valued at the date of transfer.

“People turning 65 in the year after a contribution need to be particularly careful.