One of the most common and tax effective ways of saving for retirement is through superannuation (super). Super is a specially designed, long term investment for your retirement savings. Many of us currently contribute to super in one form or another. There may be tax advantages associated with making contributions to super as well as the obvious investment earnings and retirement benefits.
Co Contribution If your assessable income is less than $31,920 during this financial year the Government will contribute $1.00 for each dollar you personally contribute to superannuation (up to a maximum of $1,000). If you are self employed, the income calculation is based on your assessable income (including any reportable fringe benefits and employer superannuation contributions, if applicable), less deductions you are entitled to claim as a result of carrying on a business.
If your assessable income is between $31,920 and $61,919 the Government will contribute $1,000 less 3.3333 cents for every dollar of income in excess of $31,920. If your income exceeds the higher amount you will not be entitled to the co-contribution. To qualify for a co-contribution, 10 per cent or more of your total assessable income, reportable fringe benefits and employer super contributions for the relevant financial year must be attributable to eligible employment, carrying on a business or a combination of both.
You do not have to apply to receive the co-contribution. At the end of each financial year the Australian Taxation Office will determine if you qualify for the contribution from information it receives from your tax return and your superannuation fund. The Government will then deposit the benefit into your superannuation account and send you a letter confirming the details.
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Insurance in Super - One of the main benefits of placing insurances inside your super fund is that the cost of your insurance cover held under superannuation will be withdrawn from your superannuation balance, which will not reduce your personal cash flow. However it will reduce the value of your superannuation.
- In the event of a claim, your superannuation death benefit (including the life cover) will be tax-free when paid to your dependents. Please note however a dependent is defined as a person you have a relationship with who lives with you, a former spouse/defacto, your children (aged under 18), or any person(s) financially dependent at your date of death. An adult child (not dependent on you for financial support) is classified as a non-dependent. A superannuation death benefit paid to a non-dependent may be taxed up to 31.5% including Medicare levy.
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Superannuation Guarantee Contributions The Government's superannuation guarantee scheme is one of their initiatives to encourage Australian's to provide for their own retirement. Employers are required to make contributions to superannuation on behalf of their employees. The amount they must contribute is determined by a set percentage of your annual salary. Currently, the superannuation guarantee percentage is 9% per annum. All superannuation guarantee contributions made on your behalf will incur a 15% contributions tax on entry to the fund. Back to top^
Superannuation Tax http://www.ato.gov.au/SearchResults.asp?fm=&so=&sh=&ps=10&si=&kw=super+taxation Back to top^
Contribution Types
The following table highlights the different types of contributions that can be made into superannuation and their treatment.
Concessional contributions |
Tax on entry |
Contribution cap per annum (financial year) |
Tax deductible |
Eligible for Government co-contribution* |
Tax on withdrawal |
Superannuation guarantee |
15% |
$25,000
(less than 50 years of age)
$50,000 (aged 50 years and over) |
Yes (for employer) |
No |
Forms part of the ‘taxable component’, nil tax is payable if withdrawn after age 60. Maximum of 21.5% if withdrawn under age 60 |
Salary sacrifice |
Self-employed / unsupported contribution (Personal tax deductible contribution) |
Yes |
Non-concessional contributions |
Tax on entry |
Contribution cap (per annum) |
Tax deductible |
Eligible for Government co-contribution* |
Tax on withdrawal |
Personal (non tax deductible) contribution |
Nil |
$150,000
(If under 65, this can be averaged over three years to allow a contribution of up to $450,000) |
No |
Yes, providing contribution meets set criteria |
Forms part of the ‘tax-free component’ therefore nil tax is payable |
Spouse contribution |
No, however a tax offset may be available |
No |
* If an individual earns $31,920 or less, the Government will contribute an amount equal to 100 per cent of the personal contribution made during the financial year, up to a maximum co-contribution of $1,000. If an individual earns between $31,921 and $61,919, the Government will contribute the lesser of $1.00 less 3.3333 cents for every dollar earned in excess of $31,920 or 100 per cent of the personal contribution made during the financial year.
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Personal Super
One of the most common and tax effective ways of saving for retirement is through superannuation (super). Super is a specially designed, long term investment for your retirement savings.
Superannuation can be described as a long term savings plan which is designed to provide an income stream after retirement. However, superannuation is different from other savings vehicles because: - the savings accumulate through special funds or plans which have special rules for the members who invest in them;
- special taxation treatment applies to those plans; and
- most superannuation investments cannot be touched until after we retire.
Personal superannuation plans are designed for individuals or their families. Contributions can be either the required Super Guaranteed Contribution or voluntary contributions and can be made by either the individual or their employer. Find out how investment into superannuation may improve your taxation position and help you retire to the lifestyle you desire. Contact us today.
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Salary Sacrifice Salary sacrificing into super is one of the simplest, yet most tax-effective ways you can build wealth for retirement. It involves your employer contributing a portion of your ‘before tax' salary into super rather than paying it to you as an income. Whilst these contributions will incur a contributions tax (of 15%), this can be less than your marginal tax rate. The Government's support of superannuation ensures that investing in superannuation is tax effective when compared to investing outside super. Back to top^
Binding/Non-Binding Nominations Upon your death, your superannuation entitlements are not automatically distributed through your Will. Whilst your superannuation fund may allow you to nominate a beneficiary, the Trustee of your superannuation fund has the ultimate discretion over who receives the funds. To overcome this, a binding nomination gives you certainty about who will receive your superannuation benefit in the event of your death. The Trustee of your fund is bound to pay your benefit to your nominated beneficiary as long as: - The nomination is valid (fully completed, dated, signed and witnessed by two adults not nominated).
- Is received by the Trustee before your death.
- Has not expired (a binding nomination only lasts 3 years).
- The nominated person is a dependent (or your legal personal representative) at the time of your death.
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