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- Thinking Ahead Issue 4
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
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 This is primarily a function of the tables used to set your required pension amounts to be withdrawn each year.
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’.
08 9226 4500
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