Superannuation
Janaury 2012
Who is presenting, where are they from?
Date?
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
Income*
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%
* Ordinary time earnings (excludes SG)
^ Employers are obliged to pay SG only up to $43,820pq/ $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
30 June 2012
$450,000
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$150,000
$150,000
30 June 2013
$0
$150,000
30 June 2014
$0
$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
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$50,900
$1,700
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%
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• 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 33-1/3%
• Tax free earnings within super when drawing a pension
• Tax free pension payments once you turn age 60
• 15% tax offset on pension payments if over 55 and under 60
Tax effectiveness of super
Start
10 years
CGT
Net amount
Assumptions:
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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
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
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Preservation age
Before 1 July 1960
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1 July 1960 to 30 June 1961
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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
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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
Below preservation age
* Includes Medicare excludes Flood Levy
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Nil
First $165,000
Nil
Amounts over $165,000
16.5%
21.5%
Pension minimum payment limits (cont.)
Age of pensioner
Under 65
4%
64 – 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!
 75% reduction applies to the minimum income
payment for the 2011/2012 and 2012-13 financial years.
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% of pension capital*
Taxation of income streams
 Tax-free portion is tax free
 Taxable portion
Age
60 and over
Preservation age – 59
Below preservation age
* A 15% tax offset available calculated on the taxable amount
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Taxed element in the fund
Tax free
Marginal tax rates*
15% tax offset
Marginal tax rates
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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BT Portfolio Services Ltd ABN 73 095 055 208 (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers
SuperWrap including SuperWrap Essentials (SuperWrap). BT Funds Management Limited ABN 63 002 916 458 is the
trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to
Wrap and SuperWrap (Wrap Products) is limited to distributor only. This document has been prepared and is provided
solely for the general guidance of advisers and has been prepared without taking into account any individuals objectives,
financial situation or needs. The information in 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. 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. This disclaimer is subject to any contrary requirement of the law. Information current as at 1
January 2012. © BT Funds Management Limited 2012.
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