Many people assume there is no tax payable on super benefits received after someone passes away, but that’s not always the case.
Whether or not tax is paid on a super death benefit depends on the beneficiary’s relationship with the deceased. Although some beneficiaries receive their money tax-free, others can find themselves paying significant amounts of tax on the funds they receive.
Dependant for tax purposes
The key point in understanding who will be required to pay tax on a super death benefit is whether or not the beneficiary is considered a death benefit dependant for tax purposes.
Although you are permitted to nominate a wide range of people as dependants under super law, the definition for tax purposes is different and narrower.
A death benefit dependant for tax purposes is limited to the deceased’s spouse, de facto, or former spouse or de facto; their child under age 18; any person with whom they had an interdependency relationship; and any other person financially dependent on them just before their death.
A common trap in this area is nominating financially independent adult children as death benefit beneficiaries, as this is permitted under super law. Under tax law, however, they are not defined as dependants for tax purposes and so are required to pay tax on the taxable component of any death benefit they receive.
Tax on lump sum death benefits
When it comes to paying a death benefit, your dependants for tax purposes are free to choose whether they want to receive your super death benefit as a lump sum or as an income stream.
If a beneficiary decides to take their benefit as a lump sum, the benefit will be free of any tax, provided they are considered a death benefit dependant under tax law.
If they are not considered a death benefit dependant for tax purposes, they must take the benefit as a lump sum. These lump sums are taxed at a maximum rate of 15 per cent plus the Medicare levy on the taxed element (which is super that has already had tax paid on it within the fund).
In addition, any untaxed elements of the taxable component in the lump sum will be taxed at a maximum rate of 30 per cent plus the Medicare levy.
If the benefit is paid to the estate, it is paid as a pre-tax lump sum and the estate is responsible for paying any necessary tax depending on the dependant status of the end-beneficiaries.
Death benefit income streams and tax
Some tax dependants prefer to take their death benefit as an income stream (or pension).
Death benefit income streams are tax-free if either the deceased or the beneficiary are aged 60 or older at the time the income stream payments are made.
Otherwise, beneficiaries will generally pay some tax on the death benefit income stream until they reach age 60, after which age the payments are tax-free.
For beneficiaries under age 60, there is no tax on the tax-free component of the death benefit income stream, but the taxable component is included in their assessable income with a 15 per cent tax offset.
Death benefits and the transfer balance cap
The transfer balance cap (TBC) rules also come into play when it comes to super death benefits.
These rules limit the amount of super savings you can transfer into the retirement or pension phase.
Tax penalties apply if amounts in excess of the beneficiary’s TBC are transferred into the retirement phase as an income stream.
The rules governing this area are very complex, so you should always seek professional advice before deciding on a death benefit nomination, as it can make a big difference in how much tax your beneficiaries will pay when they receive their death benefit payment.
If you would like more information about tax and super death benefits, call our office today.
It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.
Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.
So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.
Taking care of the basics
The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.
Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.
Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.
Super splitting
Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.
There are also some tax considerations, so it is important to make sure you understand the implications for you.
Government support
Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.
A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.
You will need to meet income and work tests and claim within certain timelines.
Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.
Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.
Grandparent gifting
Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.
However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:
it is a transfer of money or property.
the transfer is made voluntarily.
the donor does not expect anything in return.
the donor does not materially benefit.
Tax may apply in some cases where property or shares are gifted.
The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.
As the inflation rate begins to ease, with consumer inflation slowing to a 13 month low in May, many commentators expressed hope that further interest rate rises may be kept in check.
That led to a slight improvement in investor outlook for stocks at the end of June.
The S&P/ASX 200 closed the month at about the same level as in May but, over the financial year, it’s risen more than 10%.
Please get in touch if you’d like assistance with your personal financial situation.
Here are some tips that can help you build confidence in your investing approach, no matter what the markets are doing.
Emotions always play a role in investing. For some investors, especially newer ones, it can be hard to separate the idea of investing from “losing it all.” If you’re anxious or insecure about your investing plan, you could make heat-of-the-moment decisions during market downturns that might not be best for your long-term goals. That’s why it’s important to acknowledge those nerves early and make sure your emotions are working for you when you invest, not against you. Here are some tips that can help you build confidence in your investing approach, no matter what the markets are doing.
Consider dollar-cost averaging
Say you have a large lump sum of money to invest. Maybe it was an inheritance or a gift. If you’re very risk averse, one of the first thoughts you might have is “what if I invest all this money at once, and the market drops right after?” If that sounds like you, dollar-cost averaging might bring you some peace of mind.
Dollar-cost averaging means buying a fixed dollar amount of a particular investment on a regular schedule, no matter what its share price is at each interval. Since you’re investing the same amount each time, you automatically end up buying more shares when prices are low and fewer shares when prices rise. This can help you avoid that potential buyer’s remorse of investing a lump-sum amount when prices are at their peak. Incremental investing is one way to help you get comfortable with the market’s natural movement, and it can be especially helpful for self-identified worriers.
Make saving automatic
Some investors worry they’re not saving enough to reach their long-term goals—or that they’re not doing enough to keep their financial lives on track. You can take some of that uncertainty out of the equation by setting your savings on autopilot. Put a percentage of each paycheck or your annual salary into your investment accounts. You’ll be taking positive action to stay on track—and that’s a great feeling!
Diversify your investments
Diversifying your portfolio is one way to help control risk. It’s a fancy way to describe putting your eggs in many baskets—or in this case, putting your money into high-, moderate-, and low-risk investments, both domestic and international. Your portfolio will still have the growth potential that comes from higher-risk shares, but you won’t be as vulnerable during market downturns because you’ll ideally also hold safer investments like bonds and cash. The breakdown of shares, bonds, and cash in your portfolio determines how much risk you take on when you invest, and you have the freedom and flexibility to choose a mix that feels right for your life.
Think long term
Successful investing isn’t about reacting to today’s news or to the latest trends bubbling up on social media. It’s about letting your long-term goals guide your financial choices. That’s what inspired you to invest in the first place! You might be tempted to pull your money out of the market during periods of volatility. But if you do that and reinvest when the markets calm down, you could end up farther away from your goal. Why? Because your investments lose the power of compounding. And while a measured, disciplined investing approach isn’t always easy, it can be worth it in the end.
Remember: Strong financial plans are built with market volatility in mind. If you diversify your holdings, invest regularly, and stay focused on your big-picture goals, you can feel confident that you’re doing your part to set your portfolio up for success—and set yourself up for ongoing financial wellness.
Call us today to discuss your investment strategy, we’re here to help.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Small businesses across the country will be looking for ways to reduce costs amid cost of living and rising price pressures.
Economic challenges are expected to continue into the 2024 financial year, from inflation and supply chain lags to higher interest rates and reduced consumer spending.
Businesses will need to keep a close eye on their income and expenses to maintain positive cashflow, Small Business Loans Australia founder, Alon Rajic says.
“As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses,” said Rajic.
Small Business Loans Australia research set out to find out if fast-rising interest rates and inflation would impact small business’ ability and motivation to invest in themselves. Specifically, more than a quarter (29 percent) of respondents had not planned to invest in their business at all this financial year.
Three quarters of respondents (76 percent) admit their cashflow will be impacted by interest rate rises and inflation over the next year, it also found.
Specifically, 30 percent believe their cashflow will be impacted because it will be harder to collect customer payments, while 26 percent say it will be harder to attract sales. A further 20 percent say both issues will impact cashflow.
But before you take any extreme actions like reducing staff hours or letting workers go, here are 11 straightforward tips to begin minimising business costs today.
Take a systematic approach The best starting place is to consider your key cost centres, such as purchasing, sales, finance, and administration, for example.
Go over your profit and loss statement for the past 12 months and rank your expenses from highest to lowest and comb through each one in search of cost saving potential.
Make sure you go back and look over your budgets and forecasts and see how you’re tracking.
Also, benchmark your business against industry standards. For example, your waste levels could be higher than the industry average, or others in your industry could be introducing sustainable business measures, which could be bringing them savings.
Uncover hidden costs Costs aren’t always easy to spot in business, but they can add up quickly.
Hidden costs could be the rising cost of insurance policies, unused subscriptions, permits and industry memberships you pay each month even though you never enjoy any of the perks they offer.
Sit down and go through your bank account and track the expenses to see where you can make savings or do without.
Also, be sure to double check supplier invoices for any overcharging, double billing or discounts that haven’t been applied.
Sell off unwanted equipment If you’re no longer using tools and equipment, don’t let them sit in the garage or stockroom gathering dust. Conduct an audit and convert what you can back into cash wherever appropriate.
Selling used or unwanted items brings in some extra cash, you’ll be able to put that money back into keeping the business running.
Negotiate with suppliers Taking half a day out to shop around for lower prices could end up making you more money than you realise.
Call your bank and see if they will offer you a better deal on your business loans, and shop around energy providers to see how you might reduce your utilities overheads.
Start with your biggest expenses and work your way down the list.
Separate personal and business expenses Put simply: don’t make personal purchases from the business credit card. Separating out your expenses will mean you can account for them easily and it’s a great way to make sure you don’t miss out on tax deductions.
It can also make sure you aren’t mistakenly claiming for personal expenses, which will be frowned upon by the Australian Taxation Office.
Reduce spending After all, a penny saved is a penny earned.
And that means it’s much easier to hold onto the cash you already have.
Set a budget, and follow it, and analyse where your money is being spent and where you can cut costs.
Even simple things like packing your lunch and purchasing a coffee machine for the office can add up over time — that five dollars a day for takeaway coffee will wind up being around $1,300 over the course of a whole year.
Conduct a tech audit Technology costs can add up, but if you’ve implemented tech a year ago that you’re no longer using, it can be a huge waste.
Go through your licenses and subscriptions that you don’t need or use to see what you can be culled.
It may be that you’re also haemorrhaging money due to inefficiencies in your systems — for example, if you’re wasting time and resources on manual data transfers between multiple software solutions.
A business management platform should include a broad variety of built-in features, allowing you and your staff to accomplish all your core business processes, such as accounting, payroll, inventory management and more.
Improve staff productivity Employees not pulling their weight in the business can reduce efficiency and become a costly liability.
Assessing and improving staff performance can be a great way to reduce costs before resorting to reducing staff hours.
Set ambitious but achievable goals your staff can get behind and consider what business management tools you might need to help track productivity and performance.
Realign marketing budgets with performance The sole purpose of marketing is to drive interest in your business’ products and services.
When times are tough, taking a close look at your marketing performance should be a regular occurrence to determine whether you’re getting value for money.
For instance, doubling down on your customer service may drive word of mouth outcomes that effectively boost the effectiveness of other marketing activities, or a targeted letter could deliver a new favourite customer.
Whether your analysis results in less spend or more, auditing your marketing budgets will help you gain a better understanding of where and when sales are coming in, and where your money is spent.
Reduce your space Do you really need that shopfront or office space anymore?
We all learnt the virtues of running a virtual business over the past few years, so if you’re still leasing an office space, now could be the time to consider whether there are more cost-effective alternatives.
Seek out an expert If you’re finding it challenging to cut costs, consider hiring an expert to suggest other cost reduction strategies.
The right advisor can help you audit your existing systems and processes, business and sales strategies, and make suggestions on how to sustain and grow your operations.
Don’t leave the hard decisions until too late. If you’re facing challenges as a result of the current high-cost environment, now’s the time to get active.
Source: MYOB November 2022
Reproduced with the permission of MYOB. This article by Nina Hendy was originally published at myob.com
Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
We WON! It is a great privilege to be the recipient of the Federation University Gippsland Business Awards in the category of Business & Professional Services for 2022.
We would like to acknowledge and thank you our loyal clients who we get to work with every day as we enjoy your pathway to success as well as ours, a great support to our business.
Special thanks to all the sponsors and in particular the sponsor of our award, Wellington Shire Council. An event as such is not possible without the sponsors who continually support businesses in the Gippsland region.
Congratulations to all the other finalists and winners, you should be proud of your achievements and the positive contributions you have made in our Gippsland community, we commend you in what has been a difficult few years.
A big shout out to all our team who have been on this journey to success!
If you would like to get in touch, please go to our contact page or you can give us a call on 03 5120 1400 and let us know how we can assist you.
Australia’s superannuation system is based on individual accounts, with men and women treated equally. But that’s where equality ends. It’s a simple fact that women generally retire with much less super than men.
The latest figures show women aged 60-64 have an average super balance of $289,179, almost 25 per cent less than men the same age (average balance $359,870).i
The reasons for this are well-known. Women earn less than men on average and are more likely to take time out of the workforce to raise children or care for sick or elderly family members. When they return to the workforce, it’s often part-time at least until the children are older.
So, it makes sense for couples to join forces to bridge the super gap as they build their retirement savings. Fortunately, Australia’s super system provides incentives to do just that, including tax and estate planning benefits.
Restoring the balance
There are several ways you can top up your partner’s super account to build a bigger retirement nest egg you can share and enjoy together. Where superannuation law is concerned, partner or spouse includes de facto and same sex couples.
One of the simplest ways to spread the super love is to make a non-concessional (after tax) contribution into your partner’s super account. Other strategies include contribution splitting and a recontribution strategy.
Spouse contribution
If your partner earns less than $40,000 you may be able contribute up to $3,000 directly into their super each year and potentially receive a tax offset of up to $540.
The receiving partner must be under age 75, have a total super balance of less than $1.7 million on June 30 in the year before the contribution was made, and not have exceeded their annual non-concessional contributions cap of $110,000.
Also be aware that you can’t receive a tax offset for super contributions you make into your own super account and then split with your spouse.ii
Contributions splitting
This allows one member of a couple to transfer up to 85 per cent of their concessional (before tax) super contributions into their partner’s account.
Any contributions you split with your partner will still count towards your annual concessional contributions cap of $27,500. However, in some years you may be able to contribute more if your super balance is less than $500,000 and you have unused contributions caps from previous years under the ‘carry-forward’ rule.
If your partner is younger than you, splitting your contributions with them may help you qualify for a higher Age Pension. This is because their super won’t be assessed for social security purposes if they haven’t reached Age Pension age, currently 66 and six months.iii
Recontribution strategy
Another handy way to equalise super for older couples is for the partner with the higher balance to withdraw funds from their super and re-contribute it to their partner’s super account.
This strategy is generally used for couples who are both over age 60. That’s because you can only withdraw super once you reach your preservation age (currently age 57) or meet another condition of release such as turning 60 and retiring.
Any super transferred this way will count towards the receiving partner’s annual non-concessional contributions cap of $110,000. If they are under 67, they may be able to receive up to $330,000 using the ‘bring-forward’ rule.
As well as boosting your partner’s super, a re-contribution strategy can potentially reduce the tax on death benefits paid to non-dependents when they die. And if they are younger than you, it may also help you qualify for a higher Age Pension. These are complex arrangements so please get in touch before you act.
A joint effort
Sharing super can also help wealthier couples increase the amount they have in the tax-free retirement phase of super.
That’s because there’s a $1.7 million cap on how much an individual can transfer from accumulation phase into a tax-free super pension account. Any excess must be left in an accumulation account or removed from super, where it will be taxed. But here’s the good news – couples can potentially transfer up to $3.4 million into retirement phase, or $1.7 million each.iv
By working as a team and closing the super gap, couples can potentially enjoy a better standard of living in retirement. If you would like to check your eligibility or find out which strategies may suit your personal circumstance, get in touch with Prue Cox via email: p.cox@rgmgroup.com.au or via 03 5120 1400.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
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