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Articles
- Corporate Recovery
- Business Advisory
- Superannuation
- Thinking Ahead Issue 4
- Tax
A LEGAL TAX HAVEN
The need to save tax, as well as set aside money for your retirement, are both very important tasks. The most tax effective way to do this (without going overseas) is through your superannuation
Philip Rix, Managing Director, Bentleys Perth
A self managed superannuation fund,
when used correctly, can provide you with
many advantages. But even though a retail
superannuation fund gives you less control
over certain investment decisions, these
funds still have tax benefits.
Since 1992 Australia has had a system
of compulsory superannuation known as
superannuation guarantee (SG ). This super
is typically paid by employers into their
employees’ nominated superannuation
fund and is currently paid at a rate of 9%
of gross wages.
Employer contributions are not the
only way money can be contributed into
superannuation. Other common acceptable
means include:
- personal 'after tax' contributions (termed non-concessional contributions)
- capital gains made from the sale of a small business, and
- compensation payments from personal injury.
What is often overlooked with
superannuation is what we call the
'end game' – what happens with your
superannuation account when you reach
retirement.
During your working life your employer is
regularly contributing to superannuation –
this is the accumulation phase. Over time,
your superannuation account balance will
gradually increase in value.
During the accumulation phase all your
(taxable) superannuation contributions,
as well as any income earned in the fund,
are taxed at 15%. Any capital gains (those
made from the sale of assets held longer
than 12 months) are taxed at only 10%.
That's a pretty good result when you think about individuals who start paying 31.5% tax
on any income above just $37,000.
But once you start your retirement you
will find that over time your superannuation
account balance will gradually reduce – this
is the pension or drawdown phase. This is
primarily a function of the tables used to
set your required pension amounts to be
withdrawn each year.
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At this stage, the tax treatment of
superannuation gets even better. Once your
superannuation account is in the pension
phase, any earnings in your account are
completely tax free. Any capital gains are also
tax free, even if these gains have accrued
during say, the previous 10 years in the
accumulation phase of the fund – another tax
planning opportunity. Finally, if you are over
age 60, any pension payments you receive
are also tax free.
To start a pension, you don’t have to
actually ‘retire’ from your employment, but
you do need to be over aged 55 – yet another
tax planning opportunity. Your tax benefits
will not be affected if you return to work after
beginning a pension.
There are limits as to how much can be
contributed to superannuation each year and
you do need to plan carefully to ensure these
limits are not exceeded. But with several
tax opportunities worth exploring, you’ll find
Australia really does have a legal ‘tax haven’.
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Philip Rix Financial Planning 08 9226 4500 |
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