Superannuation
January 2012
Agenda
1. What is super?
2. Contributions
3. Taxation of earnings within super
4. Withdrawals
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Agenda
1. What is super?
2. Contributions
3. Taxation of earnings within super
4. Withdrawals
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Super is a tax structure, not an investment!
The government provides various tax incentives for contributing/maintaining
funds in super
The catch is that these funds cannot be accessed until you ‘meet a condition
of release’
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Overview of the super system
3 prongs of Australia’s retirement savings system
Compulsory super (Superannuation Guarantee)
Voluntary savings (Including other types of contributions to super)
Age pension
2 ‘phases’ of super
Accumulation phase
Income stream phase (once condition of release is met including transition
to retirement)
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Agenda
1. What is super?
2. Contributions
3. Taxation of earnings within super
4. Withdrawals
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Who can contribute to super?
Anyone under 65
Between 65 and 74 (‘work test’ required)
Age 75 and older (only mandated employer contributions allowed)
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What types of contributions?
Concessional contributions
Compulsory (SG)
Voluntary (Salary sacrifice and personal concessional)
Non-concessional contributions
Personal
Spouse
Government co-contributions
Other
CGT exempt
Personal injury
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Contribution limits – concessional
Concessional contribution cap
2011/12
2012/13
onwards
Under 50 years old
$25,000
$25,000*
Over 50 years old
$50,000
$25,000*
More important to start salary sacrificing earlier than ever before!
9% compulsory super counts towards this concessional cap
Transitional arrangements
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Salary sacrifice under 50’s
Superannuation
Guarantee
Maximum salary
sacrifice
Maximum sacrifice
percentage
$100,000
$9,000
$16,000
16.0%
$125,000
$11,250
$13,750
11.0%
$150,000
$13,500
$11,500
7.7%
$175,000
$15,750
$9,250
5.3%
$200,000
$15,775^
$9,225
4.6%
Income
* Ordinary time earnings (excludes SG)
^ Employers are obliged to pay SG only up to $43,820
pq/ $175,280 pa (2011-12)
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Salary sacrifice over 50’s
Superannuation
Guarantee
Maximum salary
sacrifice
Maximum sacrifice
percentage
$100,000
$9,000
$41,000
41.0%
$125,000
$11,250
$38,750
31.0%
$150,000
$13,500
$36,500
24.3%
$175,000
$15,750
$34,250
19.6%
$200,000
$15,775^
$34,225
17.1%
Income*
* Ordinary time earnings (excludes SG)
^ Employers are obliged to pay SG only up to $43,820 pq/
$175,280 pa (2011-12)
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Contribution limits – non-concessional
Personal contributions capped at $150,000 pa
If under 65 you can bring forward 2 years of cap and contribute up to
$450,000
$150,000
30 June 2011
$150,000
30 June 2012
$450,000
$150,000
30 June 2013
$0
$150,000
30 June 2014
$0
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$450,000
$150,000
30 June 2015
$0
Government co-contribution
Co-contribution up to $1,000, dollar for dollar match
Income* up to $31,920 for full benefit or up to $61,920 for partial
A number of criteria including:– Make a non-concessional contribution
– 10% of income from employment or business*
– Must lodge a tax return
– < 71 years old (at end of financial year)
– Not a temporary visa holder (exceptions apply)
If eligible, what could be better than a 100% return!
* ‘Income’ is assessable income (i.e. before deductions) plus a
couple of add backs such as salary sacrifice and reportable fringe
benefits.
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Spouse contribution tax offset
Tax offset up to $540 for contribution of $3,000
Spouse income up to $10,800 for full < $13,800 for partial
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Other contributions
CGT exempt contributions for small business owners (up to $1,205,000
lifetime limit 2011-12)
Personal injury contributions (cap is compensation amount for personal injury)
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Example salary sacrifice vs. non-concessional
contribution
After-tax contributions
Salary sacrifice
before tax
$75,000
$75,000
$0
$10,000
$75,000
$65,000
($17,300)
($14,100)
After-tax salary
$57,700
$50,900
Net super contributions
($8,500)
Net cash flow
$49,200
Salary excluding SG
Salary sacrifice amount
Net salary
Income tax, Medicare, Flood levy*
Net benefit
* Flood levy applies only for 2011-12
$50,900
$1,700
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Agenda
1. What is super?
2. Contributions
3. Taxation of earnings within super
4. Withdrawals
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Choose your tax rate!
Individual
45%
Company
30%
Super
15%
Pension
0%
• 45% - Top marginal rate + 1.5% Medicare Levy
• Discount of 50% on capital gains
• 30% Company tax rate
• No CGT discount
• 15% on earnings and deductible contributions
• 10% on capital gains - CGT discount of 331/3 %
• Tax free earnings within super when drawing a pension
• Tax free pension payments once you turn age 60
• 15% tax offset on taxable pension payments if over 55 and under 60
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Tax effectiveness of super
Start
10 years
CGT
Net amount
Assumptions:
Individual
Company
Super
$500,000
$500,000
$500,000
$1,084,548
$1,165,819
$1,244,446
$98,567
$134,556
$47,243
$985,981
$1,031,263
$1,197,203
Income 3%pa, 100% franked
Growth 5%pa
Individual taxed at 46.5%
Company rate 30%
Super Fund 15% income/10% Capital Gains tax
Income after tax reinvested
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Agenda
1. What is super?
2. Contributions
3. Taxation of earnings within super
4. Withdrawals
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Conditions of release
To access funds from superannuation via a lump sum or income stream a
condition of release must be met
There are various ‘pre retirement’ conditions of release including death,
permanent incapacity and terminal illness.
The retirement conditions of release are:-
– Over preservation age (current 55), terminated gainful employment and
not intending to seek gainful employment in the foreseeable future
– Genuine termination of a gainful employment arrangement after
attaining the age of 60
– Attaining the age of 65
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Preservation age
Date of birth
Preservation age
Before 1 July 1960
55
1 July 1960 to 30 June 1961
56
1 July 1961 to 30 June 1962
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1 July 1962 to 30 June 1963
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1 July 1963 to 30 June 1964
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After 30 June 1964
60
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Components of superannuation
A superannuation account consists of 2 components
– Tax free component
– Taxable component
How these components are determined is often complex
Any withdrawals from superannuation including the commencement of an
income stream are paid in proportion between the tax-free and taxable
components
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Additional pre-retirement condition of release (income
stream only)
Requirements
– Must have reached your preservation age
– Account based pension (allocated pension)
– Pension payment: between 4% -10%*
– Non-commutable
Strategies
– Income swap
– ‘Replace’ income as a result of moving from full time to part time employment
– Pay off a mortgage sooner
– Other variations
*The Government has allowed 75% reduction for minimum
payments for 2011-12, 2012-13
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Taxation of super components
As the name suggests, the tax-free component is tax free
The taxable component (element taxed), when withdrawing super as a lump
sum
Element taxed in the fund
Age
Superannuation lump sum tax rate*
60 and over
Preservation age – 59
Nil
First $165,000
Nil
Amounts over $165,000
16.5%
Below preservation age
* Includes Medicare excludes Flood Levy
21.5%
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Pension minimum payment limits (cont.)
Age of pensioner
% of pension capital*
Under 65
4%
65 – 74
5%
75 – 79
6%
80 – 84
7%
85 – 89
9%
90 – 94
11%
95 or more
14%
Important:
 Maximum for Transition to Retirement (TtR) is 10%
 No Pro-rata maximum on TtR!
 25% reduction applies to the minimum income payment
for the 2011/2012 and 2012-13 financial years.
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Taxation of income streams
Tax-free portion is tax free
Taxable portion
Age
Taxed element in the fund
60 and over
Tax free
Preservation age – 59
Marginal tax rates*
15% tax offset
Below preservation age
* A 15% tax offset available calculated on the taxable amount
Marginal tax rates
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Example of lump sum withdrawal
Bernard is 56 years old with a superannuation balance of $400,000
The tax-free portion of his balance is $50,000 and the taxable portion
$350,000
He has not made any superannuation withdrawals previously
How much tax will he pay if he withdraws $200,000 as a lump sum (ignoring
Medicare levy)?
Withdrawal occurs in proportion: $50,000 / $400,000 * $200,000 =
$25,000 is tax-free component, therefore $175,000 is taxable component
Tax-free component is tax free
First $165,000 of taxable component is taxed at 0%, remainder taxed at
16.5%
$10,000 * 0.165 = $1,650
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Example of income stream payment
Laura is 56 years old with a superannuation balance of $400,000
The tax-free portion of her balance is $50,000 and the taxable portion
$350,000
She rolls the funds into a superannuation income stream, and draws 4% as an
income payment on 1 July
What is assessable income that is generated from the pension in the first
financial year? What is the amount of the 15% tax offset
Pension paid = 4% * $400,000 = $16,000
Tax free portion = $50,000 / $400,000 * $16,000 = $2,000, therefore
taxable portion = $14,000
Therefore assessable income = $14,000
Tax offset = $14,000 * 0.15 = $2,100
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Asgard Capital Management Limited ABN 009 279 592, AFSL 240695 (Asgard). Information current as at 1 January
2012. This publication provides an overview or summary only and it should not be considered a comprehensive
statement on any matter or relied upon as such. This presentation contains general information only and does not take
into account your personal objectives, financial situation or needs. You should therefore consider whether information or
advice contained in this presentation is appropriate to you having regard to these factors before acting on it. You should
seek personalised advice from a financial adviser and your accountant before making any financial decision in relation to
matters discussed in this presentation. The taxation position described is a general statement and should only be used as
a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual
situation may differ and you should seek independent professional tax advice. Consider our disclosure documents which
include our Financial Services Guide available on www.asgard.com.au. © Asgard Capital Management Limited 2012.
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