2 Main Types of Superannuation Contributions

Confused by various terms such as non-concessional superannuation contributions and concessional superannuation contributions?

Here’s what it means in a nutshell.

Non-Concessional Superannuation Contributions

Non-concessional superannuation contributions is a special term associated with after-tax super contributions, ie. contributions for which an individual or employer hasn’t claimed a tax deduction.

Examples include after-tax spouse contributions and contributions made under the Super Co-contribution Scheme.

Concessional Superannuation Contributions

Concessional superannuation contributions are contributions made into your super fund before tax, which are then taxed at 15% within the superannuation fund.

These include employer contributions (both super guarantee contributions and employee salary sacrifice contributions) and personal contributions claimed as a tax deduction by the taxpayer.

From 1st July 2017, the concessional superannuation cap has been $25,000 per financial year. It is not tax effective to make contributions in excess of the contribution cap as the excess contributions will be taxed at the taxpayer’s marginal tax rates.

Tax Tip:

Making $25,000 concessional superannuation contributions annually is very tax effective as the super fund is only taxed at 15%, whereas the employer or taxpayer will be in a higher tax bracket (up to 47%), so there can be up to a 32% tax saving on the contributions made.

Where the taxpayer’s taxable income is greater than $250,000 the tax payable on the super contributions increases from 15% to 30%, so the maximum tax savings on the contributions is reduced to 17%.

In addition, from 1st July 2018 catch-up concessional superannuation contributions are allowed for those with account balances of $500,000 or less. This allows unused concessional contribution caps to be carried forward on a rolling basis for up to five years. So, up to $125,000 concessional contributions could be made in one year.

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice!

Super Withdrawal and Re-contribution Strategy

Are you approaching retirement and wondering when you can withdraw your superannuation funds (also known as, ‘super’?

Withdrawing Your Superannuation Funds

You can withdraw your superannuation funds:

Superannuation Withdrawal Options

You can receive your super as a super income stream, super lump sum or a combination of both. Check with your fund to find out what options are available to you.

The super withdrawal option that you choose may affect the amount of tax you pay and the amount of money you have for your retirement.

Super Income Stream

You receive a super income stream as a series of regular payments from your super fund (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum annual payments for super income streams.

Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

Your super income stream may be either:

  • an account-based super income stream
  • a non-account-based super income stream.

Your super income stream will stop:

  • when there is no money left in your super account
  • minimum annual payment is not made
  • commutation (when you convert a super income stream into a super lump sum)
  • when you die, unless you have a dependant beneficiary who is automatically entitled to receive the income stream.

Super Lump Sum

If your super fund allows it, you may be able to withdraw some or all your super in a single payment. This payment is called a ‘lump sum’.

You may be able to withdraw your super in several lump sums. However, if you ask your fund to set up regular payments from your super it is considered an income stream.

If you take a lump sum out of your super, the money is no longer considered to be super. If you invest the money, the money that you earn on those investments will not be taxed as super and may need to be declared in your tax return.

Tax Tip:

The superannuation withdrawal and re-contribution strategy involves the withdrawal of superannuation funds and the re-contribution of the superannuation funds back to the same fund.

The superannuation withdrawal can only be done if the member has met a condition of release, such as retiring or turning 65. Superannuation withdrawals by members over the age of 60 are generally tax free. The funds withdrawn have normally been allocated to a ‘taxable’ component as it is comprised of taxable super contributions and fund earnings.

If the member dies and their superannuation balance is paid out to an adult child, the ‘taxable’ super component will be taxed at 17%. The benefit of this strategy is that the re-contributed super turns into a ‘tax free’ component in the fund. As such, if the member dies their superannuation balance can be paid to adult children tax free (thereby saving 17% tax).

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice!

Establishing a Family SMSF

Occasionally, a client laments that their industry superannuation fund hasn’t achieved the promised returns and wonder what they can do to have greater control over how their superannuation funds are invested. Where our clients have more than $200K in superannuation funds, we recommend setting up an SMSF.

SMSF

A self managed super fund (SMSF) is a superannuation trust structure that provides benefits to its members upon retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund.

Advantages of Establishing a Family SMSF

  • Tax savings – 0% on the first $1.6 million of a member’s super balance in pension phase, 10% on any capital gains where the asset was owned for more than 12 months and 15% on any other taxable income.
  • It is possible to combine the super fund balances of up to 4 members to make larger investments than a single member could finance on their own (like a farm, commercial property, residential property, etc).
  • Owning shares in a SMSF is very tax effective as any fully franked dividends will have attached franking credits giving the SMSF a credit for the 30% tax paid by the company. As the standard super fund tax rate is 15%, the excess franking credits will be available to reduce the tax payable on other super fund income, or be refunded. In addition, even where the SMSF is solely in pension phase (i.e. paying 0% tax on the first $1.6 million of a member’s super balance), it can still claim a refund of franking credits on any franked dividend income it received.
  • It is possible purchase the business premises or farm and rent it back to the operating business at arms-length rental income.
  • It is possible to use non-recourse borrowings to finance the acquisition of larger investments.
  • Great asset protection (even if the member goes bankrupt the member’s superannuation balance is still protected from creditors).

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice!

SMSF Borrowings

The general rule is that self-managed super funds can borrow money only in very limited circumstances.

These circumstances include:

  • borrowing money for a maximum of 90 days to meet benefit payments due to members or to meet an outstanding surcharge liability (the borrowings can’t exceed 10% of your fund’s total assets)
  • borrowing money for a maximum of seven days to cover the settlement of security transactions if the borrowing does not exceed 10% of your fund’s total assets (you can only borrow to settle security transactions if, at the time the transaction was entered into, it was likely that the borrowing would not be needed)
  • borrowing using instalment warrants or limited recourse borrowing arrangements that meet certain conditions.

A trustee can use a limited recourse borrowing arrangement to fund the purchase of a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.

Any investment returns earned from the asset go to the SMSF trustee. If the loan defaults, the lender’s rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF.

Limited Recourse Borrowing Arrangements

Since 2007 super funds can finance investments with limited recourse borrowing arrangements if they comply with section 67A of the SISA.

Limited recourse borrowing arrangements must comply with the following:

  • The borrowing is only permitted over a single asset or a collection of identical assets that have the same market value, e.g. one property or one parcel of BHP shares.
  • The recourse of the lender against the super fund on default is limited to the single asset that was financed under the limited recourse loan. This means that all the super fund’s other assets are protected.
  • The super fund cannot borrow to improve an asset (for example real property).

Tax Tip:

The ultimate aim with self-managed super funds is to build a portfolio of investment earning assets (a mix of term deposits, shares and property), so that on retirement when the fund is put into the pension phase, 100% of the fund earnings will be tax free.

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice. We can also provide referrals to mortgage brokers who can assist with SMSF loans.

Does Your Accountant Hold an AFS Licence?

The accountants’ exemption, being Regulation 7.1.29A of the Corporations Regulations 2001, was repealed on 1 July 2016.

What does this mean in layman terms?

It means that accountants must hold at least a limited AFSL in order to provide advice about SMSF and superannuation.

Surely not? I don’t seek advice from my accountant about superannuation. 

Really? When you discuss your year-end tax planning strategies with your accountant and ask, ‘May I salary sacrifice $20K into my superannuation fund to reduce my taxes?’, he or she must not answer that question without holding at least a limited AFS licence.

What is a limited licence?

Under a limited licence, accountants will be able to recommend that clients establish an SMSF and provide advice in relation to existing superannuation fund holdings for the purposes of establishing the SMSF. They will also be able to provide advice about certain other classes of financial products, such as insurance and simple managed investment schemes, but will not be able to recommend specific products.

How can I tell if my accountant is licensed?

Ask your accountant for their AFSL number or check ASIC’s register.


Fortiz Accountants is one of 900 accounting firms (out of an approximate total of 20,000 accounting firms in Australia) holding an AFS licence which authorises us to provide advice on SMSF and superannuation. 

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