Preparing your SMSF for the future

What happens to a self managed super fund (SMSF) when a trustee dies or becomes mentally impaired? While these are circumstances that many of us would rather not think about, some time spent planning now could make a big difference to you and your family later.

Australia’s 620,000 SMSFs hold an estimated $933 billion in assets, so there is a lot at stake.i

But it’s not just about money – control of the SMSF may also be crucial.

The best way to ensure that your wishes are carried out is with a properly documented succession plan and an up-to-date trust deed.

An SMSF succession plan sets out what will happen if you or another trustee dies or loses mental capacity. It makes sure that there’s a smooth transition and is quite separate to your Will.

It’s important to be aware that instructions in a Will are not binding on SMSF trustees, so it’s essential to have a valid (preferably non-lapsing) binding death benefit nomination in place so the new trustees are required to pay your death benefit to your nominated beneficiary.

Your Will cannot determine who takes control of your SMSF or who receives your super death benefit as the fund’s trust deed and super law take precedence.ii

Succession plans also reduce the potential for the fund to become non-compliant due to overlooked reporting or compliance obligations. They can even provide opportunities for death benefits to be paid tax effectively.iii

Selecting successor trustees

Super law requires SMSFs with an individual trustee structure to have a minimum of two trustees, so it’s important to consider what will happen after the death or mental incapacity of one of the trustees.

An alternative to appointing a successor trustee can be introducing a sole purpose corporate trustee structure for your SMSF, as death or incapacity is then not an issue. This structure makes it easy to keep the SMSF functioning and fully compliant when a trustee transition is required.iv

Appoint a power of attorney

Good SMSF succession planning also means ensuring your Will is updated to reflect your current family or personal circumstances.

It requires having a valid Enduring Power of Attorney (EPOA) in place to help keep the SMSF operating smoothly if you lose mental capacity. Your EPOA can step in as fund trustee and take over administration of the fund or make necessary decisions about the fund’s investment assets.

Checking compliance

When developing a succession plan, ensure your wishes comply with all the requirements of the SIS Act and will not inadvertently compromise your SMSF’s compliance status.

Your planning process should include a regular review of both the fund’s trust deed and any changes in both the SMSF’s circumstances and membership, and the super legislation and regulations.

Tax is an important consideration when it comes to estate and succession planning as the super and tax laws use different definitions for who is and isn’t considered a dependant.

Your SMSF is able to pay super death benefits to both your dependants and non-‑dependants, but the subsequent tax bills vary based on the beneficiary’s dependency status under tax law.

The problems that can occur, due to the differences between super and tax law dependency definitions, were highlighted in recent private advice (1052187560814) provided by the ATO. It found that even if a beneficiary was receiving “a reasonable degree of financial support” from a deceased person just before they died, they would not necessarily be considered a death benefit dependant under tax law.

There is also the potential for capital gains tax to be payable if fund assets need to be sold because your super pension ceases when you die. Nominating a reversionary beneficiary for your pension ensures payments continue automatically without requiring any asset sales.v

If you would like to discuss or require assistance with drawing up your SMSF succession plan, give our office a call today.

i https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/highlights-smsf-quarterly-statistical-report-march-2024
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/paying-benefits/death-of-a-member
iii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/administering-and-reporting/how-we-help-and-regulate-smsfs/how-we-deal-with-non-compliance
iv https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/setting-up-an-smsf/choose-individual-trustees-or-a-corporate-trustee
v https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/in-detail/smsf-resources/smsf-technical-funds/funds-starting-and-stopping-a-pension

Market movements and review video – August 2024

Stay up to date with what’s happened in markets and the Australian economy over the past month.

While the anxiously awaited release of the latest inflation data at the end of July, showed an increase, it was in line with economists’ predictions.

Given the RBA wants inflation back within a 2-3% target range by the end of 2025, there were concerns about the inflation figures and the implications for the cash rate.

The ASX finished the month strongly with an increase of around 4%, riding out a mid-month plunge and surging to a record high for the ninth time this year.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

How to end the financial year on a high note

As the financial year draws to a close, it’s the perfect time to review your financial affairs and set the stage for a successful new financial year. By taking care of essential tasks and implementing strategic planning, you can position yourself for a smooth transition and a strong start for the year to come.

Topping up super

One important item for the To Do list is to top up your super with either concessional (pre-tax) or non-concessional (post-tax) contributions. For example, you could make a voluntary concessional contribution up to the limit allowed and then claim a tax deduction on your personal assessable income for it.

Consider making additional contributions to your own super account or your spouse’s account, to take advantage of tax concessions.

If you have unused concessional cap amounts from the previous five years and a super balance less than $500,000 on June 30 the previous year, you may be eligible to make a catch-up (or carry-forward) contribution greater than the annual limit.

Maximising contributions not only helps you build your retirement savings but can also provide valuable tax benefits. But it’s critical to be mindful of your caps and to ensure that you make any super contributions before the end of the financial year to meet the deadline.

Reviewing investments

Reviewing your investment portfolio is a valuable task at any time but particularly now.

For example, you could take a look for any capital gains or losses that could be used strategically to manage your tax liability.

Also, it is worth considering how your portfolio performed over the past 12 months against your goal of capital growth, income, or balance.

You may decide to readjust your goals or your investments to help steer performance in the right direction for the next 12 months.

Of course, if you’re planning any changes, it’s important to check in with us to ensure you’re making informed decisions about your investments.

Paying expenses early

Another useful strategy at tax time can be to bring forward any deductible expenses or interest payments before 30 June to reduce your taxable income.

That could include incurring expenses on an investment property, prepaying interest on investment loans, making charitable donations, or claiming eligible work-related expenses.

Make sure you keep detailed records and receipts to support your deductions.

The ATO’s myDeductions app is a great place to start for free record keeping and to assist you to be ready for tax time.

Setting up salary sacrifice

As you look ahead to the new financial year, consider whether a salary sacrifice arrangement might be right for you.

Salary sacrifice allows you to divert a portion of your pre-tax salary directly into your superannuation, which effectively reduces your taxable income and boosts your retirement savings.

You will need to think carefully about your living expenses to work out the amount you can afford to contribute to your super, ensuring you do not exceed your concessional (before-tax) contributions cap of $27,500 (which will increase to $30,000 from July 1 2024) to avoid paying any extra tax.

Your employer or payroll department can help you set up a salary sacrifice arrangement.

Checking your budget

This is a good time to revisit your financial goals and how you’re tracking, and then put together a strong budget for the new financial year that will help get you further along the track.

Take the time to review your income and expenses and identify any areas where you can cut back spending or improve your income.

This exercise not only helps you understand your financial habits but also allows you to reallocate funds towards your goals, such as paying down debt, building an emergency fund, or increasing your investment contributions.

Consult with professionals

Don’t forget to check in with your trusted advisers – financial advisers, accountants, or tax professionals – to make sure you are making the most of any opportunities for financial growth and maximising tax savings.

Taking advantage of our expert advice to review your current financial situation and goals, and check that you are making the best decisions for you can make a difference. It provides peace of mind, ensures that you are complying with any obligations and, importantly, puts you in the best position to achieve your financial goals.

Understanding the new $3m super tax

The much-debated tax on superannuation balances over $3 million is inching closer and those who may be affected should ensure they have considered the implications.

Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particularly in relation to any end-of-financial-year contributions into super.

Tax for higher account balances

The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.

Once the legislation passes through Parliament and receives Royal Assent, Division 296 will take effect from 1 July 2025. Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance exceeds $3 million at the end of the financial year.i

The extra 15 per cent is only applied to the amount that exceeds $3 million.

Given the complexity of the new rules, it is important to seek professional advice so you can make informed decisions.

How the new rules work

A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.

When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.

The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.

Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities. If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.

Strategic rethink may be needed

For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.ii

But those with higher account balances need to understand the potential effect of the Division 296 tax. For example, given the new rules, you may need to consider whether high-growth assets should automatically be held inside super.

Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.

For some, holding commercial property assets (such as your business premises) within your SMSF may be less attractive.

It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.

Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits of super.

Estate planning implications

Your estate planning will also need to be revisited once Division 296 is law.

The tax rules for super death benefits are complex and should be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.

If you still have many years to go before retirement and hold high-growth assets in your fund, you will need to closely monitor your super balance.

If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.

i https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/understanding-concessional-and-non-concessional-contributions

The importance of SMSF succession planning

Preparing for loss of capacity or death is vital for SMSF members. It’s important to ensure your trust deed is watertight.

There are more than 600,000 self-managed superannuation funds (SMSFs) in Australia, managing close to $900 billion of assets on behalf of over a million Australians.

Each SMSF’s trust deed is legally required to set out the rules for establishing and operating the SMSF including its objectives, who can be a member of the SMSF, and whether benefits can be paid as a lump sum or as an income stream.

But what happens when a member becomes incapacitated, or dies?

Has the SMSF’s trust deed been worded in a way that will make it possible to give effect to the wishes of an incapacitated or deceased member, to the extent those wishes are consistent with superannuation laws?

If you’re a member of an SMSF, it’s important to ensure that you have ticked all the right boxes when it comes to succession planning.

And, to do this, it’s worthwhile considering obtaining tailored professional advice from an SMSF specialist.

Preparing binding death benefit nominations

SMSF members generally have a degree of ability to choose who will get their residual super benefits when they die, by making and giving the SMSF’s trustee a binding death benefit nomination.

This directs the fund’s trustee to pay the benefit to either a legal personal representative or one or more eligible dependants of the member.

However, depending on the wording of your SMSF trust deed and the nomination itself, it is possible that a binding death benefit nomination given by a member will expire after just three years (or any shorter period specified in the trust deed) under Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth). In that scenario, assuming the member is still alive, their death benefit nomination would then need to be renewed and there would be no death benefit nomination in place unless and until they do so.

But the High Court ruled last year that it is possible for a validly made binding death benefit nomination to last indefinitely if a trust deed’s wording is structured in such a way that effectively avoids the three-year automatic expiry.

This is a prime example of why it may be worthwhile getting professional advice around the wording in your trust deed covering death benefit nominations as well as your nomination form, including whether they are aligned with your preference as to how often (if at all) death benefit nominations need to be updated in order to be legally effective.

Preparing for loss of capacity or death

Another key aspect for SMSF trustees to consider and plan for is who would take control upon a member’s loss of capacity or death.

For example, problems can arise where someone wanted their super money to go to a child from a previous relationship, but where a second spouse controlling the fund was able to frustrate the wishes of the deceased.

It’s certainly worth asking how your wishes will be honoured if you lose capacity or die. Who will or could be running the fund in this situation? As there are a range of legal factors and restrictions that shape who would be eligible to operate the SMSF or make decisions on your behalf, good quality expert legal and financial advice on these matters can go a long way to avoiding inconvenience, confusion and conflict in future.

Reversionary pension nominations

SMSF trust deeds can generally specify that a superannuation income stream that a member of the SMSF is receiving will automatically transfer to an eligible dependant beneficiary previously nominated by the member upon the member’s death. This nomination is typically referred to as a reversionary pension nomination.

For some SMSF members they can be very important, particularly for people who have a high tax-free component or who are expecting a life insurance payout upon their death.

Some SMSF trust deeds are worded in a way that gives priority to a reversionary pension nomination over a binding death benefit nomination, which can lead to unexpected or unintended outcomes after a member’s death.

Reversionary beneficiary nominations are not necessarily needed or suitable for everyone with an SMSF, but for those wanting to implement them it’s important to ensure they’re permitted under the terms of the trust deed and enforceable in the future.

Getting succession planning advice

SMSF trust deeds can be complex documents, and it’s vital to ensure that yours is structured to ensure it is best placed to conform to your wishes in the event you’re incapacitated or die.

Consider giving us a call or consulting a licensed financial adviser or other relevant qualified professional who specialises in SMSF.

Source: Vanguard

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer and the Operator of Vanguard Personal Investor. We have not taken your objectives, financial situation or needs into account when preparing this article so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any financial product we make available before making any investment decision. Before you make any financial decision regarding Vanguard products, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the TMD before making any investment decisions. You can access our IDPS Guide, PDSs, Prospectus and TMDs at vanguard.com.au or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This article was prepared in good faith and we accept no liability for any errors or omissions.

Your guide for claiming business expenses

You can claim tax deductions for expenses you incur while running your business if they’re directly related to earning business income (also known as assessable income).

Take Rubi for example. Rubi is a sole trader who works as an IT consultant. As part of her work, she travels to deliver seminars and workshops.

Rubi follows the 3 golden rules for claiming a tax deduction when she travels for business purposes.

  1. The expense must be for her business, not for private use.
  2. If the expense is for a mix of business and private use, she can only claim the portion that is used for her business.
  3. She must have the records to prove it.

Rubi uses the myDeductions tool to store receipts of all her airfares, accommodation, public transport costs, ride-sharing fares, car hire fees and other costs such as fuel, tolls and car parking. She also records her meal costs if she’s away overnight.

Rubi also keeps a travel diary to note which expenses were for business purposes and which expenses were private, such as sight-seeing. The cost of her recent tour of the Tower of London is not included in her deductions. There are some expenses Rubi can’t claim, such as entertainment, traffic fines, and expenses related to earning non-assessable income.

As an employer, Rubi meets her superannuation and employer obligations by reporting her employees’ salaries or wages and paying any tax withheld amounts on time. This allows her to deduct the salaries, wages and super contributions she’s paid during the year.

By the time Rubi is ready to lodge her tax return, her tax agent has everything they need to verify her deductions.

Be like Rubi and perfect your record keeping to correctly claim your business expenses and make tax time easier.

To check your record keeping skills, you can use this record keeping evaluation tool.

Remember, we can help you with your tax and super.

Source: ato.gov.au August 2023
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/Business/Small-business-newsroom/General/Your-guide-for-claiming-business-expenses/.
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.

How a super recontribution strategy could improve your tax position

Withdrawing part of your superannuation fund balance then paying it back into the account, known as a recontribution strategy, may sound a little strange but it could deliver a number of benefits including reducing tax and helping to manage super balances between you and your spouse.

Your super is made up of tax-free and taxable components. The tax-free part generally consists of contributions on which you have already paid tax, such as your non-concessional contributions.

When this component is withdrawn or paid to an eligible beneficiary, there is no tax payable.

The taxable component generally consists of your concessional contributions, such as any salary sacrifice contributions or the Super Guarantee contributions your employers have made on your behalf.

You may need to pay tax on your taxable contributions depending on your age when you withdraw it, or if you leave it to a beneficiary who the tax laws consider is a non-tax dependant.

How recontribution strategies work

The main reason for implementing a recontribution strategy is to reduce the taxable component of your super and increase the tax-free component.

To do this, you withdraw a lump sum from your super account and pay any required tax on the withdrawal.

You then recontribute the money back into your account as a non-concessional contribution. If you withdraw this money from your account at a later date, you don’t pay any tax on it as your contribution was made from after-tax money.

The recontribution doesn’t necessarily have to be into your own super account. It can be contributed into your spouse’s super account, provided they meet the contribution rules.

To use a recontribution strategy you must be eligible to both withdraw a lump sum and recontribute the money into your account. In most cases this means you must be aged 59 to 74 and retired or have met a condition of release under the super rules.

Any recontribution into your account is still subject to the current contribution rules, your Total Super Balance and the annual contribution caps.

Benefits for your non-tax dependants

Recontributing your money into your super account may have valuable benefits when your super death benefit is paid to your beneficiaries.

A recontribution strategy is particularly important if the beneficiaries you have nominated to receive your death benefit are considered non-dependants for tax purposes. (The definition of a dependant is different for super and tax purposes.)

Recontribution strategies can be very helpful for estate planning, particularly if you intend to leave part of your super death benefit to someone who the tax law considers a non-tax dependant, such as an adult child.

Otherwise, when the taxable component is paid to them, they will pay a significant amount of the death benefit in tax. (Your spouse or any dependants aged under 18 are not required to pay tax on the payment.)

Some non-tax dependants face a tax rate of 32 per cent (including the Medicare levy) on a super death benefit, so a strategy to reduce the amount liable for this tax rate can be worthwhile.

By implementing a recontribution strategy to reduce the taxable component of your super benefit, you may be able to decrease – or even eliminate – the tax your non-tax dependant beneficiaries are required to pay.

Watch the contribution and withdrawal rules

Our retirement system has lots of complex tax and super rules governing how much you can put into super and when and how much you can withdraw.

Before you start a recontribution strategy, you need to check you will meet the eligibility rules both to withdraw the money and contribute it back into your super account.

If you would like more information about how a recontribution strategy could help your non-dependants save tax, give our office a call today.

Money saving tips for travel

Travelling cheaply needn’t mean you miss out. Find out the best ways to save big on your overseas holiday plans, and make the most of every dollar.

Why you should budget for your overseas holiday

Most of us love to travel, but not many can afford to travel as often as we’d like. A trip to Europe or the US might seem like it’s out of reach, but there are ways to rein in your travelling expenses and get to the places you love, more often.

Travelling on a budget doesn’t have to mean that you miss out. If you plan ahead, work out a budget (and stick to it), you can have a better, longer – and cheaper – holiday.

You may also want to consider our savings accounts and term deposit account which can earn interest against your deposits to help you get to your holiday savings goal.

Here are ten tips on how you can save money on your travels – and have a cheaper, better, longer holiday.

1. Fly for less

One of the few downsides to living in Australia is that you’re miles from anywhere. Getting much beyond Bali will cost you, but there are ways to reduce flight costs.

2. Avoid peak holiday times

Travelling at the height of the European summer, for example, not only costs more, it’ll mean half your holiday is spent in a queue.

3. Compare flights as well as airlines

Remember, the cost of a flight can vary a lot, depending on when and how you purchase it.

Check out flight comparison websites to get a good deal. If you do book through one of these sites, be sure to read the small print. Their change or cancellation policies might not be as flexible as you need and could cost you more than you save.

4. Find an inexpensive bed

Halve your accommodation costs and you might be able to travel for twice as long.

5. Consider homestays

Go into this with the right attitude—be generous and ready to share—and you could end up with a free roof over your head, a tour guide, and a lifelong friend all wrapped up in one.

6. Check out a house swap website

You’ll be surprised to know how many people from Tuscany are eager for a holiday in Tasmania.

If you’re a bit more adventurous or love the outdoors, try backpacking, (no longer just for the young) or camping.

7. Go somewhere, not so obvious

Paris. New York. London.

Of course, the great world cities will always be magnetic places, but there’s a whole world out there. How about Marseille? Portland? Manchester? Belo Horizonte? Naples?

8. Get off the beaten track

It’s quieter, cheaper, and often more ‘authentic’. So long as you don’t tell too many people.

9. Eat like a local

Your greatest cost after accommodation will be food. Take the opportunity to sample the local cuisine – and cook when you can.

10. Do your research before you leave home 

If you have a smartphone, get a good, cheap mobile data plan. Check out the public transport, perhaps download the transport apps for the cities you’re travelling to. Oh, and a free wi-fi finder app also might be worth getting.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/travel/money-saving-tips

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

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.

How super contributions and withdrawals are taxed

How much tax you pay on your super contributions and withdrawals depends on:

  • your total super amount
  • your age
  • the type of contribution or withdrawal you make

If you inherit someone’s super after they die, the person’s super fund pays you a super death benefit. You may have to pay tax on some of this benefit.

Because everyone’s situation is different, it’s always best to get advice about tax matters. Contact the Australian Taxation Office (ATO) or us.

How super contributions are taxed

Money paid into your super account by your employer is taxed at 15%. So are salary-sacrificed contributions, also known as concessional contributions.

There are some exceptions to this rule:

  • If you earn $37,000 or less, the tax is paid back into your super account through the low-income super tax offset (LISTO).
  • If your income and super contributions combined are more than $250,000, you pay Division 293 tax, an extra 15%.

If you make contributions from your after-tax income — known as non-concessional contributions — you don’t pay any contributions tax.

See tax on contributions on the ATO website for more information about how much tax you’ll pay on super contributions.

To avoid paying extra tax on your super, make sure you give your super fund your Tax File Number.

How super investment earnings are taxed

Earnings on investments within your super fund are taxed at 15%. This includes interest and dividends less any tax deductions or credits.

How super withdrawals are taxed

The amount of tax you pay depends on whether you withdraw your super as:

  • a super income stream, or
  • a lump sum

Everyone’s financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you speak to us to get financial advice before you decide to withdraw your super.

Super income stream

A super income stream is when you withdraw your money as small regular payments over a long period of time.

If you’re aged 60 or over, this income is usually tax-free.

If you’re under 60, you may pay tax on your super income stream.

Lump sum withdrawals

If you’re aged 60 or over and withdraw a lump sum:

  • You don’t pay any tax when you withdraw from a taxed super fund.
  • You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.

If you’re under age 60 and withdraw a lump sum:

  • You don’t pay tax if you withdraw up to the ‘low rate threshold’, currently $230,000.
  • If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.

If you have not yet reached your preservation age:

  • You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.

See the super lump sum tax table on the ATO website for more detailed information.

When someone dies

When someone dies, their super is usually paid to their beneficiary. This is called a super death benefit.

If you’re a beneficiary, the amount of tax you pay on a death benefit depends on:

  • the tax-free and taxable components of the super
  • whether you’re a dependent for tax purposes
  • whether you take the benefit as an income stream or a lump sum

See super death benefits on the ATO website for detailed information or contact us today.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/tax-and-super
Important note: 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.  Past performance is not a reliable guide to future returns.
Important
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Should I buy insurance through my super?

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn, or a lump sum to protect your loved ones if the worst happens.

Insurance products such as life insurance and total and permanent disability (TPD) cover are available through your superannuation fund or directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, and critical illness or trauma cover.

Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.i

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

  • Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
  • Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
  • Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ii Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

  • Cost-effective: Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow.
  • Automatic inclusion: Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
  • Tax benefits: Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

  • Limited flexibility: Super funds can only offer a standard set of insurance options, which may not fully align with your needs.
  • Reduced retirement savings: Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
  • Coverage gaps: Depending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
  • Possible tax issues: Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage and to make sure you are not paying unnecessary premiums if you have more than one super fund.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps to make the most of this benefit. If you would like to discuss your insurance options, give us a call.

i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)