Su­per­an­nu­a­tion: What, why and how

The Weekly Advertiser Horsham - - News -

De­spite fre­quent changes to its gov­ern­ing rules, su­per­an­nu­a­tion re­mains, for most peo­ple, a tax-ef­fec­tive en­vi­ron­ment in which to save for re­tire­ment.

Fol­low­ing is a quick ques­tion and an­swer on the what, why and how of con­tribut­ing to su­per­an­nu­a­tion. Why should I con­trib­ute to su­per? Some su­per con­tri­bu­tions and the in­vest­ment earn­ings within su­per funds are taxed at 15 per­cent. Be­cause this is lower than the mar­ginal tax rate for peo­ple earn­ing more than $18,200 a year, less tax is paid on the money go­ing into su­per than if it was paid to you as nor­mal in­come. The higher your mar­ginal tax rate, the greater the ben­e­fit. What con­tri­bu­tion types can I make? • Con­ces­sional con­tri­bu­tions. These are con­tri­bu­tions on which you or your em­ployer has claimed a tax de­duc­tion. They are taxed at 15 per­cent within the su­per fund. If you earn more than $250,000 a year you will be taxed an ad­di­tional 15 per­cent on the con­ces­sional con­tri­bu­tions above this thresh­old. Con­ces­sional con­tri­bu­tions in­clude: Com­pul­sory em­ployer – Su­per­an­nu­a­tion Guar­an­tee – con­tri­bu­tions. Your em­ployer must pay 9.5 per­cent on top of your or­di­nary time earn­ings to your su­per fund when you earn more than $450 a month; Salary sac­ri­ficed con­tri­bu­tions made from your pre-tax in­come; Per­sonal con­tri­bu­tions on which you claim a tax de­duc­tion; Cap: $25,000 a year. The un­used por­tion can be car­ried for­ward and used in fu­ture years if your to­tal su­per bal­ance is un­der $500,000. • Non-con­ces­sional con­tri­bu­tions. Con­tri­bu­tions on which a tax de­duc­tion has not been claimed, in­clud­ing: Per­sonal con­tri­bu­tions on which you do not claim a tax de­duc­tion; Spouse con­tri­bu­tions. These can gen­er­ate a tax off­set of up to $540 if your spouse earns less than $40,000 a year; Gov­ern­ment co-con­tri­bu­tions. Worth up to $500, co-con­tri­bu­tions are avail­able if your tax­able in­come is less than $51,813 a year and you make a non-con­ces­sional con­tri­bu­tion; Caps: $100,000 a year, or $300,000 if a fur­ther two years of con­tri­bu­tions are brought for­ward.

You can­not make non-con­ces­sional con­tri­bu­tions if your to­tal su­per­an­nu­a­tion bal­ance ex­ceeds the gen­eral trans­fer bal­ance cap – the amount that can be trans­ferred to pen­sion phase – cur­rently $1.6-mil­lion.

Who can con­trib­ute to su­per? You can make per­sonal con­tri­bu­tions to su­per if you are un­der 65 and you are aged be­tween 65 and 75 and were gain­fully em­ployed, in­clud­ing self-em­ployed, for at least 40 hours over 30 con­sec­u­tive days dur­ing the fi­nan­cial year.

You can claim a tax de­duc­tion for these con­tri­bu­tions, but make sure you don’t ex­ceed the $25,000 an­nual cap for con­ces­sional con­tri­bu­tions from all sources or the $100,000 cap on non-con­ces­sional con­tri­bu­tions.

Spouse and gov­ern­ment co-con­tri­bu­tions can only be re­ceived up to age 70 pro­vided you pass the work test. You are el­i­gi­ble for man­dated em­ployer con­tri­bu­tions, in­clud­ing Su­per Guar­an­tee pay­ments, re­gard­less of your age.

Get it right A suc­cess­ful su­per con­tri­bu­tion strat­egy can mean the dif­fer­ence be­tween look­ing for­ward to re­tire­ment and dread­ing it. This ar­ti­cle is pro­vided as an over­view. Su­per is a com­plex area and fur­ther rules ap­ply in some sit­u­a­tions. Get­ting things wrong can be costly, so talk to a qual­i­fied fi­nan­cial ad­viser and get the right ad­vice.

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