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What Was The 10% Rule For Super Contributions?

Prior to 1 July 2017, individuals had to meet strict rules to make personal deductible super contributions, but it’s a little bit easier to do so since changes came into effect from the 2017/18 financial year.

What was the 10% rule?

According to the Australian Taxation Office (ATO), up until 30 June 2017, individuals had to meet the ‘10% rule‘ or ‘10% test’ to be eligible for a tax deduction for personal super contributions.

This rule meant it could be quite hard for employees to get extra pre-tax (concessional) contributions into their super fund unless their employer was prepared to enter a salary sacrifice arrangement. It could also be challenging for anyone combining self-employment with work as an employee. 

The 10% rule was, as the ATO details, a legal requirement which stipulated that any individual could not claim a tax deduction for personal superannuation contributions if they received 10% or more of the following as an employee:

  • assessable income plus
  • reportable fringe benefits plus
  • total reportable employer superannuation contributions.

The ATO points out that this rule applied even if the employer didn’t make superannuation contributions on behalf of the employee.

 

The 10% rule caught many ostensibly self-employed people, especially during the start-up phase or periods of low business activity where they may have picked up extra employed work to supplement their business income. You can read some examples provided by the ATO of how the 10% rule was applied here.

 

 

Why was the 10% rule scrapped?

As explained by the ATO, the 10% rule was removed effective from 1 July 2017 for several reasons. Superannuation lobby groups argued it was unfair to those with out-of-the-ordinary employment arrangements, and created unnecessary red tape in the superannuation system. Both the SMSF Association and the Institute of Chartered Accountants of Australia had fought for a change to the rule as early as 2014, arguing that it no longer made sense in the wake of changes to superannuation made in the 2000s.

 

The rule was abolished in the May 2017 Federal Budget. Now the ATO notes no such restrictions on individuals looking to make tax-deductible contributions. Regardless of whether they’re employed, self-employed, or a combination of both, most people should be able to claim tax deductions for personal super contributions provided they follow the steps outlined by the ATO.

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Australian income tax rates for 2018/2019

– New tax offset and higher 32.5% tax threshold for 2018/2019 year – Income tax rates for 2018/2019 financial year (subject to legislation)

On 8 May 2018, in the 2018 Federal Budget, the federal government announced new tax relief measures, with some commencing from 1 July 2018 (2018/2019 financial year), subject to legislation.

In this article, you can also find the Australian income tax rates applicable for the 2018/2019 financial year, the 2017/2018 financial year.

Note:

If you’re Age Pension age or older, you may be eligible for a higher tax-free threshold by taking advantage of the Seniors & Pensioners Tax Offset (SAPTO).

The Australian tax financial year runs from 1 July to 30 June of the following year; for example, the 2017/2018 financial year is 1 July 2017 through to 30 June 2018, and the 2018/2019 financial year is 1 July 2018 through to 30 June 2019. The income tax rates for the 2018/2019 year, for the 2017/2018 year and for the 2016/2017 year (and earlier financial years) are set out below.

Note: The primary source for taxpayers on any information relating to tax brackets and individual tax rates is the Australian Taxation Office website (www.ato.gov.au

New tax offset and higher 32.5% tax threshold for 2018/2019

For the 2018/2019 financial year, the federal government announced 3 significant changes to the income tax rules, in the 2018 Federal Budget:

  1. Low and Middle-Income Tax Offset. From 1 July 2018 until 30 June 2022 (for only 4 years), the application of a Low and Middle-Income Tax Offset (LAMITO) for Australians with a taxable income of less than $90,000. The Low Income Tax Offset (LITO) will continue to apply, alongside the LAMITO (for information about LITO, see SuperGuide article LITO: What is the Low Income Tax Offset, and how does it work?). According to the federal government, the LAMITO will provide tax relief of up to $530 a year for affected taxpayers (for more information about LAMITO.
  2. Raising the marginal tax rate threshold for 32.5% tax bracket. From 1 July 2018, raising the marginal tax threshold for the 32.5% tax bracket to $90,000 (from $87,000). Note that this tax threshold was also raised from 1 July 2016 to $87,000 (from $80,000).
  3. Medicare levy will remain at 2%. Previously, the federal government had announced that the Medicare levy would increase to 2%, and the additional 0.5% would be directed to the National Disability Insurance Scheme. The increase to 2.5% is no longer going ahead and the federal government is funding NDIS from consolidated revenue

Income tax rates for 2018/2019 financial year (subject to legislation)

The tax-free threshold is the first $18,200 of your income. You can earn up to $20,542 before any income tax is payable, when taking into account the Low-Income Tax Offset. For those earning under $125,333, a Low and Middle-Income Tax Offset (LAMITO) will also be available, with those Australians on a taxable income of between $48,000 and $90,000 receiving the maximum LAMITO of $530.

For the 2018/2019 year, your top marginal rate of income tax rate can be 0%, 19%, 32.5%, 37% or 45% (plus Medicare levy).

Note: For the 2018/2019 year, the 37% marginal tax rate takes effect when your taxable income exceeds $90,000. For the 2017/2018 year, the 37% marginal tax rate takes effect when your taxable income exceeds $87,000. For previous financial years (before July 2016), the threshold for the 37% tax rate is $80,000.

Income tax rates for 2018/2019 financial year (subject to legislation)

Income Marginal tax rate:

  • $0-$18,200 0%
  • $18,201- $37,000 19%
  • $37,001-$90,000 32.5%
  • $90,001-$180,000 37%
  • $180,001 and above 45%

Source: Adapted from information on the ATO website (www.ato.gov.au).

* You can earn up to $20,542 before any income tax is payable, when taking into account the Low-Income Tax Offset (LITO). For those earning under $125,333, a Low and Middle-Income Tax Offset (LAMITO) will also be available, of up to $530 (subject to legislation).

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What Happens to Your Super if You Move Overseas?

If you’re moving permanently or indefinitely to another country, what happens to your super?

Even if you’ve only worked in Australia as a temporary resident, it’s likely you’ve received super contributions. According to the Australia Taxation Office (ATO), the rules for what you can do with your super when you leave the country depend on your citizenship or residency status. This article explains the general rules regarding your super if you move overseas, but your circumstances may be different; it’s always a good idea to seek independent financial advice for your specific situation.

What happens to my super if I am an Australian citizen or permanent resident?

The ATO advises that if you’re an Australian citizen or a permanent resident, you probably won’t be able to access your super just because you’re going overseas, even if you’re moving away permanently. Your super will remain subject to the same rules as when you resided in Australia, accessible when you reach the preservation age and retire or if you meet one of the other conditions of release.

But while you can’t access it early, your super will still be there, generating returns for when you do retire. If you’re moving overseas but working for an Australian employer, your employer may still need to make super contributions into your account on your behalf.

There is one exception to be aware of that may allow you to access your Australian super fund. If you’re moving to New Zealand you may be able to take advantage of the Trans-Tasman portability scheme, allowing you to transfer your super to a KiwiSaver account. This means you may be able to move your Australian super to the equivalent New Zealand scheme without having to retire or meet one of the other conditions for release, although your money will be subject to New Zealand laws. As the ATO points out, there are a number of rules to comply with, you may have to pay exit fees for your current fund and you can only transfer from a fund regulated by the Australian Prudential Regulation Authority, not from others such as a self-managed super fund.

What happens to my super if I am a temporary resident?

If you were only a temporary resident of Australia and you are now leaving, you might be eligible for a departing Australia superannuation payment (DASP). To do so, the ATO indicates you need to have left Australia, had your visa expire or be cancelled and not be a citizen of Australia or New Zealand.

If this is the case, either you or an authorised representative could be able to contact your super fund trustee and request the release of your super.

Within 28 days after receiving your application you should receive your payout by electronic funds transfer or cheque, minus the applicable taxes. According to the ATO, the current rate is a flat 65% for anyone who was a working holiday maker or a 35% rate for the taxed portion and 45% for the untaxed portion for everyone else. Usually, there is no tax levied on the tax-free component.

 

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5 Savvy Things To Do With Your Money In Your 30’s

Kicking career goals, getting married, starting a family and buying your own home – these are some of the key rites of passage you may encounter in your thirties. Here are a few tips to develop your fiscal fitness to get you through this decade and the years ahead.

Your thirties are the years where financial decisions can become more complex and costly as your responsibilities stack up. Here a few ways to help build and protect your wealth during these crucial years of your life.

1. Kick your career into gear

Your thirties are a great time to assess whether your career goals are on track. According to a study by Seek, 62% of participants felt they weren’t reaching their full potential at work.

Whether you are in need of a career change or are keen to move up the ladder, there are a number of things you can do to move closer to your vocational goals.

It might be worthwhile spending some time reassessing and mapping out your dream career, doing some networking with people in your industry, exploring new education and training opportunities or preparing for a pay rise negotiation with your employer if you love your job but feel underpaid

2. Revamp your budget

Having a household budget can be an indispensable way to plan household finances and develop a good savings pattern. If you started a budget in your twenties, you will likely need to adjust it as your financial needs grow.

Wedding planning and family planning can be very costly, so it’s worthwhile taking the time to factor those expenses into your budget and avoid drawing from your precious retirement savings.

Budgeting tends to make managing personal finances easier and can help make sure your needs, both short and long-term, are being fulfilled before your wants.

3. Be wise with that increased cash flow

Your thirties can be a time when you start to make headway in your chosen profession and your salary can begin to increase. While it is common for some people to reward their hard work by relaxing their budget, an increase in earnings presents an opportunity to boost your savings or grow your wealth through investing.

If you prefer a low-risk approach to growing your wealth, committing your earnings to a high-interest savings account or a term deposit could be a way to slowly build up your cash. Both have pros and cons to consider, and since interest rates are currently low, it may be worth thinking about investing your extra earnings in other areas.

Another idea could be to funnel your savings into a mortgage offset account if you’re a home owner, which could help you reduce the total loan amount on which you pay interest.

4. Reduce your credit card debt

One of the golden rules of financial planning is often to clear your most expensive debt first. Bad debt such as a high-interest credit card debt could be a good one to clear off in your thirties.

If you can’t eliminate your debt entirely, consider a balance transfer or switching to a low-rate credit card. A balance transfer will allow you to transfer the balance of your credit card to a new credit card from a different financial institution with little or no interest for anywhere from 12-24 months.

As well as the promotional interest rate, make sure you consider fees for the cards and the interest rate the card transitions to after the low interest or interest-free period when comparing. Also, be aware each application you make is added to your credit file, meaning it might not be a good idea to switch too often.

5. Be ‘super’ tricky

Choosing the right Superannuation fund in your thirties can play an important  role in securing a financially stable future. Despite Super often being crucial to our retirement plans, it’s an aspect of our finances that doesn’t always get the attention it deserves.

Your thirties is a prime time to engage with Super, there are many important factors to consider when choosing the right Superfund for you, including fee’s, performance, insurance, education and regular updates on a quarterly basis.

One of the golden rules of financial planning is often to clear your most expensive debt first. Bad debt such as a high-interest credit card debt could be a good one to clear off in your thirties.

If you can’t eliminate your debt entirely, consider a balance transfer or switching to a low-rate credit card. A balance transfer will allow you to transfer the balance of your credit card to a new credit card from a different financial institution with little or no interest for anywhere from 12-24 months.

As well as the promotional interest rate, make sure you consider fees for the cards and the interest rate the card transitions to after the low interest or interest-free period when comparing. Also, be aware each application you make is added to your credit file, meaning it might not be a good idea to switch too often.

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How Departing Australia Superannuation Payments (DASP) Works?

Guide to departing Australia superannuation payments (DASP), how they work, and how you can go about applying for one.

If you are (or were) a temporary resident or a ‘working holiday maker’ (WHM) in Australia and accumulated superannuation during your stay, you may be able to withdraw your super as a lump sum payment when you depart the country if you meet certain requirements.

How do departing Australia superannuation payments (DASPs) work?

Temporary residents working in Australia under an appropriate visa generally accumulate super. That means super remains locked up with the fund or the Australian Tax Office (ATO) if the visa expires or is cancelled and you leave Australia. The good news is the DASP system can provide a way to receive super as a lump sum after leaving the country.

An ‘appropriate visa’, according to the ATO, is any temporary resident visa not from retirement subclasses 405 and 410 and holders of these visas are usually entitled to super just like any eligible worker in Australia, subject to the same preservation rules.

Whether your super is being held by a fund or the ATO will depend on how long it’s been since you left Australia without claiming a DASP; if it’s been six months or more since you left Australia, your visa has ceased to be in effect and you have not claimed DASP, your super fund(s) is required to transfer your balance to the ATO as unclaimed super money (USM). According to the ATO, you can apply for a DASP regardless of who has your super, however you may have to use a different application method.

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5 Money Mistakes to Avoid in Your 40s

With a few decades under your belt and a few solid life lessons learnt, your forties can be a pivotal decade when it comes to your finances. And while habits developed in your twenties and thirties may have helped you achieve your targets to date, your forties are a great time to get yourself on the path to achieve some big financial goals.

Here are some potential money mistakes to avoid in your forties; whether you have teenage kids, young ones, a growing family or no kids at all, we’ll give you some pointers to think about.

1. Living too large

It can be tempting to overspend by striving to keep up when others around you are spending big on houses, holidays and luxury items. However, this is rarely wise. Be especially careful of overspending on your house or car and make sure you don’t accumulate more liabilities than you can afford. It’s also important to avoid falling into the trap of overspending as you earn more by using increased cash flow wisely.

By reviewing and resetting your budget, tracking your spending, taking care of credit card debt, boosting your credit rating, setting savings goals and understanding your financial options you can prevent yourself from overspending.

2. Making minimum mortgage repayments

If you’re a home owner, your forties can be a great time to clear away a lot of your home loan. It can be easy to fall into old habits that may have started in your twenties or thirties. So if you entered the property market making minimum or interest-only payments because it was all you could afford at the time, try to break the habit by using any extra cash flow to step up your repayments. That is, unless you are deliberately making minimum payments as part of a negative gearing strategy.

Similarly, be aware of overextending yourself by treating your mortgage offset account or redraw facility like and ATM. Borrowing from the equity in your home loan or withdrawing extra cash from your offset account to fund an overseas holiday isn’t generally a smart idea.

Paying off as much as you can afford during your forties could help you own your home sooner, while saving money on the cost of the loan.

3. Ignoring the importance of Superannuation

Despite being critical to our retirement plans, it is an aspect of our finances that doesn’t always get the attention it deserves. If your super balance isn’t looking as healthy as you’d like, and you’re counting on the pension to finance your retirement, you may be in for a shock. According to the Department of Human Services, the maximum single pension you can receive per fortnight is $907.60. While that might stretch far enough to cover basic living expenses like groceries and electricity, it’s not likely to cover those relaxing trips abroad you’ve been fantasising about.

Have more than one super account? You might consider rolling them over into one to potentially reduce fees. You may also want to consider salary sacrificing additional pre-tax contributions, on top of your employer’s mandatory 9.5% superannuation guarantee contribution. Depending on your circumstances, another option is to make after-tax contributions to help build your super and potentially attract government co-contributions, if you’re eligible.

4. Putting your kids' education ahead of your retirement

If you’re a parent, your forties can be a great time to accelerate savings plans for funding your children’s high school or tertiary education. If you can afford to fund your child’s study and give them a head start, that’s great. But be careful of putting their education before your own retirement plans. If you don’t make plans for your retirement now, it can be harder to catch up later. In terms of budgeting, it’s a good idea to work out how much you’ll likely need when you retire and calculate your budget and any inclusions you’d like to make.

5. Postponing planning for the future

It might not be pleasant to think about, but taking the time to get your will in order now can make your passing much less stressful for your family.

It’s never fun to think about what might happen after you die, but avoiding it isn’t a great idea either, particularly if you have children to care for, spouses to support or considerable assets amassed. One of the most important steps in planning for the only certainty in life is to make sure you have a valid will in place. Without one, your assets may not be distributed as you had hoped, yet it is estimated that half of all Australians die without having a will in place. It’s also worthwhile considering the pros and cons of trusts, which can be a great way to protect your assets.

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Productivity Commission’s Superannuation Report, the Super real facts

Just when you thought there couldn’t possibly be any more superannuation news, the independent but government-funded Productivity Commission has delivered a massive draft report into the entire industry.

The Superannuation: Assessing Efficiency and Competitiveness draft report is causing waves in finance circles, so what is it about?

The draft report, released on 29 May found the current super system has ‘structural flaws … harming a significant number of members, and regressively so.’ Fixing these structural problems could lead to a significant increase in retirement savings. The key problems the report highlighted were the proliferation of multiple accounts and underperforming funds across the sector.

What is the Productivity Commission?

The Productivity Commission is an independent body, established to provide research and advice to the Government across all issues affecting the Australian population. The Commission was requested by the Treasurer, Scott Morrison, to investigate the superannuation industry, with a particular eye on their efficiency and competitiveness.

What were the Commission’s findings?

The Commission identified several problems impacting the performance and competitiveness of the super industry, mainly connected to customers’ lack of access to information to properly compare their options. While the Commission found there were products on offer that did suit most consumer’s needs, they were difficult to find amidst all the options on offer. Even when consumers can find products that suit their needs, they often lack the necessary information to properly compare them to other offerings, leading to confusion.

Another problem the Commission identified is underperformance of investments, coupled with fees and insurance cover eroding what gains were made. While there were high-performing funds out there, the draft report found many underperform by a significant margin, particularly amongst retail funds. The returns from these underperforming funds’ may make a substantial difference in the amount you have when you retire, potentially adding up to tens or even hundreds of thousands over the course of a career. This can be exacerbated by high fees and excess or duplicate life insurance policies eating away at what gains were made.

Further, about 10 million super accounts, or a third of all super accounts, were unintended and unnecessary duplicates. Duplicate super funds can result in duplicate fees and life insurance costs, further eroding savings. Regulation was also found to be lacking, often focusing more on funds than providing necessary information to fund members.

Finally, the Commission found the way the current default super system operates could be ‘harmful’ to members. Default funds are those you are allocated by your employer if you don’t nominate your own choice. While default funds do have to conform to certain standards, these don’t include performance, leaving some members at risk from an underperforming fund.

What needs to be done?

In response to these problems, the draft report proposed a new way of allocating default funds, taking the choice away from individual employers. It proposed setting up a new organisation to determine default funds, with strict criteria and an emphasis on low fees and a history of performance. Members would also only be allocated a default fund once, when they enter the workforce, eliminating the problem of receiving a new fund with every employer.

Under the Commission’s recommendations, individual workers would still be able to choose their own fund over the default option but should be provided with a shortlist of competitive options, instead of the tens of thousands of options they have access to now.

The report also recommends a strengthening of regulation and governance, with a particular emphasis on insurance, board appointments and mergers. It also states that regulators need to focus more on fund members, providing them with relevant information.

There is no set date for the Government to respond to the report, but the Commission has outlined a plan to implement recommendations by 2020.

In the meantime, there are a few things you can do to make sure you’re making the most out of your super. You should consider consolidating your funds, meaning you will avoid paying duplicate fees and insurance. You should also look at the performance of your fund and compare it to others out there. As the Commission’s report has highlighted, performance can make a huge difference in the size of your super fund by the time you retire.

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(PROPOSED CHANGES) Superannuation changes – Federal Budget 2018/19

Changes to superannuation were announced in the Federal Budget on 8 May 2018. These super changes are not yet law but it is well worth considering how your plans might be affected. The proposed changes include:

Superannuation proposed changes

Fees

A cap on admin and investment fees on low balance super accounts (with less than $6,000) at 3% to prevent low super balances from being eroded by fees. This may see fees reduce for some fund members. A ban on all super fund exit fees. According to APRA, super members lost approximately $52m in exit fees in 2016/17.

Insurance

Insurance within super to be opt-in rather than default for members under 25, members with balances of less than $6,000 and members whose accounts have not received a contribution in 13 months and are inactive. A number of Industry SuperFunds have already taken steps to change insurance coverage for younger members. It will be important to ensure no workers are left without insurance, such as new entrants to the workforce, women on extended maternity leave or low balance workers in high risk jobs. This change is likely to impact the insurance arrangements within super and is proposed to take effect from 1 July 2019.

Auto-consolidation

All super accounts that have not received a contribution for 13 months, with balances below $6,000, to be classified as inactive and transferred to the ATO and for the ATO to attempt to proactively reunite those accounts with a member’s active account. Accounts not auto-consolidated will go to consolidated revenue until validly claimed. These changes may have implications for seasonal and other irregular workers. You will be able to inform your fund that whilst you are not making contributions you wish your monies to remain in your fund. You can currently seek to consolidate your super, for more information click here. The measure starts 1 July 2019.

ATO to monitor ‘Notice of Intent’ requirements

Tightening rules for tax deductions on personal contributions to ensure super fund members who receive a tax deduction on personal super contributions are completing ‘Notice of Intent’ forms. The measure commences on 1 July 2018.

 

Additional recommendations

Allowing retirees to work more

The Pension Work Bonus to increase to $300 per fortnight (an additional $50). This allows pensioners to earn up to $300 each fortnight without reducing their Age Pension payments. The measure also extends coverage to self-employed members. Commences 1 July 2019.

 

Allowing retirees to make voluntary contributions in the first year of retirement

Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.

 

Retirement income products

A new retirement income framework, requiring super funds to offer whole of life products and to provide standardised information. The age pension means test rules will also be changed.

 

Pension Loan Scheme

Expansion of the Pension Loan Scheme to allow Aged Pensioners to boost their income with a loan from the government against the equity in your home. $11,799 for singles or $17,787 for couples per year can be paid in fortnightly payments to supplement existing income. These payments are a loan with the government, attract interest and need to be repaid from sale proceeds of your house or can be repaid at any time.

 

High income earners

High income earners (individuals who earn more than $263,157 a year) with multiple employers will be able to make wages from certain companies exempt from the Superannuation Guarantee (SG) to avoid breaching the Concessional Contributions Cap.

 

Self managed super funds

The maximum number of trustees allowed in a self-managed super fund will be raised from four to six, and from July next year the government will allow funds with “a history of good record-keeping and compliance” to obtain an audit once every three years instead of annually.

 

No change to legislated SG Increase

The Budget did not make any changes to the legislated increase in the SG beginning with an increase from 9.5 per cent to 10 per cent on 1 July 2021.

 

The government has previously proposed the following changes which have not yet been legislated:

 

Unpaid Super

On September 14th 2017 the Federal Government introduced a bill that will seek to close a legal loophole that allows employers to shortchange employees who make extra salary sacrifice super contributions.

 

Closing this loophole is a welcome step that shows progress is being made to tackle widespread Super Guarantee non-compliance, but a more comprehensive approach is necessary given the salary sacrifice changes will only help one in ten of those affected by unpaid superannuation.

 

Allowing older Australians to contribute downsizing proceeds into superannuation From 1 July 2018, individuals aged 65 and over will be able to make a non‑concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation. These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.

 

Merging of the Superannuation Complaints Tribunal and other financial complaint services into a single complaints Authority

The government has proposed merging of the Superannuation Complaints Tribunal with the Financial Ombudsman Service and the Credit and Investment Ombudsman into a single Financial Complaints Authority. The new body will deal with all financial disputes, including superannuation, and provide binding dispute resolution, and will be funded by industry.

 

Super fund governance On September 14th 2017 the Federal Government introduced a bill to make changes to the requirements of super fund board members. This includes mandating one-third independent directors on boards, an independent chair and would require funds to explain why they do not have a majority of independent directors on their boards.

 

Industry SuperFunds equal representative model of employer and member representatives on boards has been a proven success delivering strong returns to members. These proposed legislative changes will seek to dismantle this successful model. Industry SuperFunds oppose this change.

 

Imputation credit changes

The Federal Opposition have announced a proposal to cease refunding unused imputation credits. This has resulted in widespread media commentary on the impact on retirees. See our explainer on the issue and how fine-tuning the policy could reduce or remove the impact on pensioners with small and moderate parcels of shares.

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Taking a Super Pension

Once you’ve retired, theoretically speaking you may never need to work another day again, so why should you have to worry about budgeting your pension? Taking a super pension can help make managing your super easier as it provides you with a regular and reliable income.

How does a super pension work?

A super pension provides you with steady payments, while usually still allowing you to make a lump sum withdrawal if you need to. One of the advantages of a super pension is that many kinds allow you to keep your money invested within the super system. Further, according to the Australian Taxation Office if you start a super pension while qualifying for a condition of release, like reaching 65 years old and retiring, the earnings your investments make will typically be tax exempt.

The exact amount is determined by your age and circumstances, but the chart below shows the general rules. However, there is no maximum withdrawal limit.

You can schedule your pension payments as frequently as you like – annually, half-yearly, quarterly or monthly – meaning that you can use what works best for you. Additionally, any remaining money in your pension account when you die will be paid to you nominated beneficiary.

Super pension rules

Note though, that the amount you withdraw can have an impact on any Age Pension entitlements you have. An account-based pension provides you with both an asset and an income for the purposes of the Age Pension test, potentially reducing the amount of the Age Pension you can receive.

 

You should also remember that there is a transfer balance cap of $1.6 million that you can move to an account-based pension. Amounts in excess of this must remain in the accumulation phase of super.

Consider a transition to retirement pension

If an account-based pension doesn’t suit your needs, particularly if you haven’t yet reached a condition of release, you could consider a transition to retirement pension (TTR). This allows you to access some of your super while continuing to work. To be eligible for a TTR pension, you must have reached your preservation age, 60 for most people, but you don’t need to have retired.

 

A TTR pension can help to ease you into retirement, while allowing you to still earn super guarantee payments. However, you must withdraw between 4% and 10% of your pension fund balance each year, and you cannot withdraw a lump sum payment.

If a super pension sounds like it suits your needs, your first task should be to look around at the products on offer.

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What is a Superannuation Proceeds Trust and How Does it Work?

Issues of tax and inheritance can rear their head if you pass away without effective estate planning provisions in place; in some cases superannuation proceeds trust can be implemented to sort these matters out.

If you want your superannuation benefit held in a trust rather than being paid directly to a specific person or people, one option may be to set up a superannuation proceeds trust in your will.

What is superannuation proceeds trust?

A superannuation proceeds trust is a type of testamentary trust established solely to receive superannuation proceeds on the death of a fund member. The trust can be established by your will or in some cases, by deed after your death.

A superannuation proceeds trust is similar in operation to other trusts set up in a will, with one significant difference; to be tax-effective, the beneficiaries are limited to persons who were your death benefit dependants as defined by the tax laws. As explained on the ATO website, this list is slightly different to the meaning of ‘dependant’ under the super rules, and includes the following people:

  • your de facto or legal spouse;
  • your former de facto or legal spouse (if you have one);
  • your child aged under 18 years;
  • someone who was in an “interdependency relationship” with you;
  • or someone financially dependent on you just before your death.

Under the super laws, a super fund trustee generally has discretion to decide when and to whom to pay a death benefit. To create a superannuation proceeds trust, you will usually have to create a valid binding death benefit nomination in favour of your legal personal representative. This means your superannuation fund trustee must pay your death benefit into your estate, where it will be used to create the superannuation proceeds trust. Your will should contain special provisions and clauses to allow this to happen. It’s really important to get good legal advice if this is something you want to do, so your plans don’t have any unintended consequences such as increased tax or potential beneficiaries missing out on receiving a payment.

If you don’t have provisions in your will, it can still be possible to create a superannuation proceeds trust by deed, but the rule are much more complex. For example, not every super fund’s trust deed supports the establishment of a superannuation proceeds trust in this manner. There are additional restrictions under the superannuation and tax laws that apply to a superannuation proceeds trust created by deed that don’t apply to one created under a will. Navigating these rules can cause much more stress for your family compared to having the right provisions in place in your will before your death.

You should also check with your super fund about their approach to superannuation proceeds trust, and whether your super fund is providing you with the most value possible.

 

Why might you choose to use a superannuation proceeds trust?

Superannuation proceed trusts can be useful in several situations, many of which are to do with tax and the degree of control over when and to whom a death benefit is paid.

Taxation

As mentioned above, if beneficiaries of a superannuation proceeds trust are your death benefit dependants, as defined by the tax laws, the ATO states that they are generally eligible to receive payments from the trust tax-free. This is regardless of the number of individuals who end up benefitting from the trust.

 

This generally results in a similar tax treatment as if the beneficiaries had been paid the death benefit directly, but with a number of other benefits. For example, a former spouse may receive a tax-free death benefit from a superannuation proceeds trust, but cannot be paid directly by a superannuation fund under the superannuation laws unless they meet another definition of dependant. As with any testamentary trust, utilising a superannuation proceeds trust may help to minimise tax payable by minor beneficiaries. The ATO advises that a minor can be taxed at a rate as high as 66 cents on the dollar on some income; however income payments made to minors from a superannuation proceeds trust is treated as ‘excepted income’, meaning it will generally be taxed at adult marginal tax rates.

 

It’s a good idea to seek advice from a tax specialist about the considerations for your specific situation, because there are many factors that need to be taken into account.

Protection from creditors

If superannuation death benefits are paid directly from a super fund trustee to a beneficiary, this can potentially expose the payment to recovery by any creditors the beneficiary owes money to.

Placing your superannuation death benefit in a superannuation proceeds trust can provide your beneficiaries with some degree of protection. Broadly speaking, creditors can’t make a claim for a beneficiary’s share held by the trust. This can be useful if, for example, one of the trust’s beneficiaries is in a high-risk occupation or financially exposed to a large degree. Similarly, if a beneficiary went through a divorce or similar relationship issues, their share of the benefit held by the trust would generally remain protected from and inaccessible to the other party.

Longevity and flexibility

There are several reasons why you may not want one or more of your tax dependants to receive their share of your superannuation death benefit immediately after your death. These reasons could include, but are not limited to:

  • Perceived immaturity
  • Vulnerability, for example as the result of a disability or undue influence from others
  • Wanting the benefit to be paid at a significant point in your beneficiary’s life (e.g. their 21st birthday)
  • Wanting the dependant’s share of the benefit to accumulate in value before being paid to them.

In most Australian jurisdictions, a superannuation proceeds trust can exist for up to 80 years – the exception is South Australia, in which a superannuation proceeds trust can exist in perpetuity. This means that the trustee can choose to delay the point at which the death benefit is paid to beneficiaries by up to 80 years following your death, although in most cases they would probably not choose to delay distribution for that long.

At the end of the day, estate planning and trusts can be tricky legal instruments and shouldn’t be set up or arranged for without consultation with professionals such as a solicitor, accountant and financial adviser, and of course, your dependants. And as mentioned, the first step in considering where your superannuation will go when you pass away should be ensuring that you’re with the right super fund to begin with.

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