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!

What To Do Now That You Have Just Migrated to Australia

Are you a new migrant to Australia? Welcome! Here is a list of important things to do and consider now that you’ve arrived in Australia.

Get a Mobile Phone in an Australian Network

A mobile phone with connection to the Australian network will make sure that you can keep in touch with your friends and family in Australia and overseas. You might also need to make a lot of calls within the first few weeks of your arrival, such as calling for a taxi service. A mobile phone with internet access will also give you access to most everyday services online, without needing access to a computer or Wi-Fi.

Consider:

  • Pre-paid or post-paid (contract) phone plans? Note that post-paid phone plans will require you to make regular payments monthly (depending on the plan) and might have extra requirements.
  • Which network? Australia has plenty of network providers, such as Optus, Telstra, or Vodafone. Do your research and see which provider has a plan that will suit your needs or price range.

Find a Place to Stay

Do you have a place to stay? You may choose to rent an apartment or house before choosing where you would like to live long-term.

Here are a few rental sites to get you started:

Domain

property.com.au

realestate.com.au

Do your research in advance because your choice will depend on your needs, preference or budget. Know that there are a lot of cheaper options for you in the interim period, such as hostels and Airbnb, instead of hotels.

Know How You Will Travel

Do you know how you will get where you need to go? A few transportation options are renting/leasing a car, buying a car, or public transportation.

Consider:

  • Renting and buying can end up costing you the same amount. You can find some guide questions to help you decide here .
  • Make sure you have at least third party insurance for your car! This will save you money if you are ever in an accident.
  • Public transport may be adequate for you if you are intending to mostly travel around Melbourne’s CBD. Driving and parking is difficult in the city! Find out more about Melbourne’s public transport here.

Convert your Driving Licence

If you hold an international driver license, VicRoads may or may not recognise your licence or your driving experience depending on which country your license was issued to you or your age. Note that your right to drive in Victoria using your foreign license also depends on whether you hold a temporary or permanent visa.

Consider these:

If you are staying in Australia for more than 6 months, you must get a Victorian issued drivers’ license.

If you plan on using your license for identification purposes, your license must be issued in Australia.

This is especially important for the 100-point ID check that is used by the Australian government in order to confirm your identity. You will need to pass the 100-point ID check to register for some of the services on this page, such as Centrelink.

Register with Centrelink

Centrelink is a government program, part of the Department of Human Services, in charge of providing government payments to Australians, visa holders, students, seniors and more. For example, if you have dependent children, you can be eligible for the Family Tax Benefit and receive payments for your family. Or if you haven’t found employment after a certain amount of time, you can receive unemployment payments while you continue your search for a job.

Visit the Centrelink website to see a range of benefit payments you can be eligible for.

If you have never dealt with Centrelink, you will need to make an appointment at your nearest Centrelink office and apply for a Customer Reference Number (CRN) with valid documents to confirm your identity.

The CRN acts as a key for your Centrelink records. Once you receive your CRN you can create an account online and start using services.

Enrol for Medicare

Medicare is a government scheme which offers a range of services, including free or discounted access to public health services, doctors and emergency treatment in a public hospital. In order to access these services you must enrol for Medicare and receive a Medicare card.

To to enrol, visit: How to enrol or re-enrol in Medicare.

Start Looking For a Job

This will be one of your priorities but it can also be very challenging. Here are few sites where you can start your job hunt:

SEEK

Indeed

Job Search Australia

But don’t forget:

  • You may need to re-write your CV. What Australian employers expect from your CV to look like may be very different from what’s expected in your home country.
  • You may wish to look for a template on the internet or seek the services of a resume writer (just search up “resume writing services” on the internet and see what’s available for you).
  • Apply for as many jobs as you can. It will increase your chances of being hired.
  • Network, network, network! Some jobs are not advertised.
  • Remember that some jobs may require additional certification, such as those around children or those involving food and drinks.

Apply for a Tax File Number (TFN)

As a resident in Australia, a Tax File Number (TFN) is needed for many aspects of your life here.

You will need it in order to start getting paid by your employer, to access some government services/benefits or to apply for an Australian Business Number (ABN) which you will need to start a business. Holding a TFN will ensure that you are taxed correctly and will also allow you to lodge your mandatory tax return.

Your tax file number (TFN) is your personal reference number in the tax and super systems.It is an important part of your tax and super records as well as your identity, so keep it secure. Your TFN is yours for life. You keep the same TFN even if you change your name, change jobs, move interstate or go overseas.

Visit the Australian Taxation Office (ATO) to apply for a TFN.

Set Up a Bank Account

There is a large range of banks in Australia to choose from. It’s best to do your research to find the bank that will suit your needs. You will also need to provide your bank details to your employer once you have secured a job.

Be sure to provide you TFN to your chosen bank so they do not withhold tax from the interest you earn in your account at the highest marginal tax rate (currently 45%).

Apply for Superannuation

Superannuation is compulsory when you work in Australia. This is basically a retirement fund that you will be able to access after you retire. Your employer is liable to pay the superannuation guarantee contribution (currently 9,5%) on your ordinary time earnings into your chosen fund.

In most cases, you have the option of choosing your superannuation fund or allowing your employer to choose for you. More information is available here.

Understand your Australian Tax Obligations

Now that you are in Australia, it is very important to understand your tax obligations. Did you know that you have to claim your overseas income for taxation? This does not just mean money earned from employment overseas, but also income earned from investments, businesses and pensions. You will penalised if withhold this information on your claim, even if it is unintentional. An accountant can help you avoid this trouble early on.

Disclaimer: This blog post has been simplified to cover the common scenarios. This should not be construed as advice from Fortiz Accountants. There are many other factors to be considered and each person’s situation is unique. Therefore, we encourage readers of this blog post to contact Fortiz Accountants for assistance with their specific circumstances.

 

If you need help in understanding your tax responsibilities in Australia as a new migrant we can help you! Our accountants can help you make sure all your financial records, both in Australia and overseas, comply with Australian law. We can help keep track of your finances and ensure you successfully lodge your tax returns. Additionally, most of our accountants and staff have either been there, done that, so they are more than happy to advise you.

 Contact us and see how we can assist you!

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.

FY 2017 Year End Tax Tips for Individuals

With just 6 days to the end of the financial year, here are some tax tips for individuals to reduce your taxes.

Record Keeping

We cannot emphasis this enough. Too often, we meet clients who have deductible expenses which they incurred for income producing purposes BUT they have misplaced or forgotten to keep their receipts.

If the total claim for work-related expenses is more than $300, ATO requires written evidence to prove your claims. Generally, you need to keep these for five years from when you lodge your tax return in case of a tax audit.

If you are tech-savvy and prefer to do things on the go,  check out the app developed by ATO to help taxpayers keep tax deductions and income records all in one place!

Motor Vehicle Log Books

If you plan to claim motor vehicle deductions, you would need to keep a log book.

Under this method you need to:

  • keep a pre-printed logbook (available from stationery suppliers) or make your own logbook
  • have written evidence of your fuel and oil costs, or odometer readings on which your estimates are based
  • have written evidence for all your other expenses.

You can create a logbook and record work-related car trips using the myDeductions tool in the ATO app. If you use and record your trips using myDeductions, you don’t need to keep paper records as well.

Donations

Donations to charities which are deductible gift recipients (DGR) are tax deductible. To check if the charity is a DGR, you can check on the ABN lookup portal. It is important to note that crowdfunding campaigns may not be tax deductible.

Salary Packaging

If your employer provides salary packaging benefits, it will be worthwhile exploring and discussing these options with your trusted accountant (that’s us!). Some expenses which can be salary sacrificed include cars, health insurance, loans, school fees, childcare fees and other expenses such as mobile phones.

Super Contributions

You can make concessional contributions (“before tax” contributions) which are tax deductible, and are generally taxed at 15% within superannuation. Such contributions are capped at $30,000 per year if you are under 50.

If you make contributions to a complying superannuation fund or a retirement savings account (RSA) on behalf of your spouse (married or de facto) who is earning a low income or not working, you may be able to claim a tax offset. You will be entitled to a tax offset of up to $540 per year if you meet certain conditions.

Always seek the advice of your financial planner or your accountant who must have an AFS licence to provide advice on superannuation. [Fortiz Accountants holds an AFS Licence, so feel free to make an appointment to chat with us about superannuation.]

Private Health Insurance

If you are a high income earner, the Medicare levy surcharge (MLS) payable. MLS is designed to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce demand on the public Medicare system. The MLS is payable in addition to the Medicare levy. The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families. To avoid this surcharge, all you need to do is to take out private health insurance cover.

Income Protection Insurance

The cost of premiums for income protection insurance are tax deductible.

Premiums paid for other insurance cover (life insurance, trauma insurance and critical care insurance) are not tax deductible. However, these insurances may already be paid via your superannuation fund.

If you do not hold income protection insurance, life insurance, trauma insurance, or TPD insurance, we are able to assist by arranging for our referral partner to contact you.

Capital Gains/Losses from Shares or Properties

Any capital losses can be used to offset capital gains (but not employment income). If you do not have capital gains, the capital losses can be carried forward to offset capital gains in future years. Therefore, it may be worthwhile to look at your non-performing investments to see if any investment should be sold before 30 June, so that the capital loss can offset against the capital gain.

If you intend to sell any investments and realise a capital gain, consider deferring the sale till after 1 July 2017 to ensure any Capital Gains Tax liability is deferred for another year.

We would be more than happy to assist our clients with CGT calculations prior to EOFY, so that informed decisions can be made.

Other Matters (Family Tax Benefits)

You have 1 year to submit a lump sum claim and confirm your income for that financial year. That means that you will need to submit your income tax returns for FY 2016 by 30 June 2017, or FY 2017 by 30 June 2018. Failure to lodge your tax returns on time may result in Centrelink cutting your family assistance payments.

 

Hate being hit with a huge tax bill year after year? Contact us to make a tax planning appointment.

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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