These are the total amounts saved in your superannuation fund so far, it would be expected that every year your accrued benefits would increase as contributions and net income are added.
While you continue to contribute into your superannuation fund towards retirement, your funds are held in what is known as accumulation phase. Then once you retire and are ready to draw a pension stream your benefits change from being in accumulation phase to being in pension phase. The benefits do not actually physically move anywhere; they just have a different status and taxation treatment within the fund.
Account Based Pension
This is a popular type of pension stream that can be drawn at regular intervals (but at least annually) from your self managed superannuation fund once you have satisfied a condition of release, usually retirement after age 55 or upon reaching age 65. Amounts allowed to be withdrawn each year must be between minimum and maximum amounts that are calculated (annually) based on your age and of course the amount of funds that you have in the fund. There is no guarantee with this form of pension that it will last for your entire life time. Upon your death, the balance may be paid to your spouse or other designated financial dependant, either by way of reversionary pension, a new pension stream or a lump sum.
Australian Taxation Office
This Federal Government body probably needs no introduction; however it is important to note that self managed superannuation funds are regulated by the ATO. Complying superannuation funds are entitled to concessional tax rates of 15%, unless the ATO advises the trustees that the fund has become non-complying. If non-complying, the fund will be taxed at 46.5%. It is crucial therefore, that trustees ensure that their fund is complying at all times. As our current clients know, Global Superannuation Services Pty Ltd offers various services to assist in your responsibilities and obligations.
Someone for whom assets are being held. Members and their dependents are beneficiaries of a superannuation fund.
The amount of accrued entitlements in a superannuation fund that is held for the member.
If you have personal assessable income below the $61,920 threshold for the 2012 financial year you may be able to qualify for the government co-contribution scheme. You can receive the government co-contribution if you make personal (non-concessional) contributions up to $1,000 before 30 June to a complying superannuation fund and you are no more than 70 years of age as at the end of the financial year. Note that 10% of more of your total income must be derived as active income ie. income from running a business, eligible employment or a combination of both to qualify.
Changes have been made to the Government's Superannuation Co-Contribution incentive effective 1 July 2012. The higher income threshold against which the co-contribution is assessed has been reduced from $61,920 to $46,920 and the maximum co-contribution matched by the Government has decreased from $1,000 to $500.
Complying Superannuation Funds
When a new self managed superannuation fund is established it must choose to be regulated under the Superannuation Industry (Supervision) Act 1993 (SIS) in order to become a complying fund. Only a complying fund is entitled to concessional tax rates.
If you are salary sacrificing, self employed, or running your own business you may consider making before tax contributions of up to $25,000 a year into your superannuation fund prior to 30 June or if over age 50 you can take advantage of the transitional before-tax contribution limit of up to $50,000 per annum, up until 30th June 2012.
From 1st July 2012 the before-tax contribution limit will be $25,000 per annum across all ages.
A contribution is money paid into the superannuation fund either by a member, the employer of the member or some other person or entity on behalf of the member. All contributions are preserved until a condition of release is satisfied by the member, usually retirement after age 55 or reaching age 65.
A self managed fund may either have individual trustees, or alternatively choose to use a company. When a corporate trustee is chosen, all directors of that company must be members of the fund.
A dependant for superannuation purposes includes:
The deceased member's spouse, including de facto partner; and
The deceased member's children, whether from former relationships, adoption or step-children.
From July 1 2004, the law was amended to include people with interdependent relationships. An interdependent relationship between two people means:
They live together;
They share a close personal relationship;
One (or each) provides the other with financial support; and
One (or each) provides the other with domestic support and personal care.
This change in definition means that now, for example, live-in housekeepers for the infirm or elderly, people caring for physically, intellectually and psychiatrically disable people, and also same sex couples should be able to qualify as dependants for superannuation purposes. However, they will need to be able to prove that they satisfy ALL the above conditions to show that the relationship is not just an employer/employee one.
One of the considerations trustees must make when formulating their investment strategy is diversification. This basically means that the trustees should not put all their eggs in one basket (one asset class) when investing. Should the particular asset class suffer a downturn, the fund will loose more than if the fund is spread over several asset classes.
Eligible Termination Payment (ETP)
For superannuation purposes, ETP's are used to roll money out of one fund and into another. ETP's are also required when making payments to its members. ETP's are an important document as they specify the various components of the member's money and how it is to be treated for tax purposes. It is essential that trustees keep these documents secure for at least 5 years.
These are superannuation amounts paid into the fund by the member out of his after- tax money, that is, from his pay packet. Because the contribution is coming from the member after he has paid tax, then the contribution is not taxed again when it goes into the fund.
These contributions are kept as a distinct and separate component within the fund and are generally known as non-concessional contributions.
Even though these contributions are made by the member, they are preserved (since July 1 1999) and once they go into the fund, they may not be drawn out again until a condition of release is met, generally retirement after age 55, or upon reaching age 65.
These contributions are taxed by the superannuation fund at 15% for complying superannuation funds. Employer contributions include any superannuation amounts paid for the employee over and above the 9% Superannuation Guarantee. (ie Salary Sacrifice or Superannuation Supplements).
When income is paid by way of a franked dividend, the franking credits represent the amount of tax the issuing company has paid on that income. This means that in effect the amount received is only 70% of the actual amount earned.
See franking credits (above).
Self managed superannuation funds are the perfect choice for people who want to have control over their investments in their fund. Investment choice means trustees have complete power to invest the fund's money however they choose provided it is done in accordance with the investment strategy and also within the rules and regulations in the SIS Act 1993.
‘In-house asset' is a loan to, an investment in, or lease with, a member of related persons or associates of the fund.
A payment to a member (who has satisfied a condition of release) as one single payment rather than as a pension stream. These payments do not qualify for the pension rebate and are subject to tax depending on various components. When lump sum payments are made to a member they are accompanied by an ETP (see above) that will give details of these components, as each could be subject to different tax rates.
Assets held in a self managed superannuation fund must be held at current market value, so the true value of the fund can be easily calculated on any given day.
This is easy to do in relation to shares, units in trusts and managed funds. For property it is advisable to have a valuation done at the end of each income year, but every three years at a minimum.
A person is considered a member of a superannuation fund in which he/she holds superannuation benefits. Specifically with self managed superannuation, all members of such funds MUST also be trustees of that fund. This is required under superannuation law and ensures that all members have control over the decisions of the fund.
Non-complying Superannuation Fund
When a self managed superannuation fund applies to be regulated within 60 days of establishment, a fund becomes a complying superannuation fund. Once complying, the fund is entitled to receive concessional tax rates as an incentive to save for retirement.
In order to continue to attract the concessional rates, the trustees are responsible for ensuring that the fund is maintained within the rules and regulations set down in the Superannuation Industry (Supervision) Act 1993 (SIS).
If the trustees do not manage their fund in accordance with SIS, then chances are high that the ATO will penalise the fund, and in severe cases, it will deem the fund to be non-complying. This results in the removal of the concessionary tax status, and means the tax rate for the fund becomes 47%. Other penalties can also apply if trustees do not abide by the rules, so it is imperative that trustees have a complying fund.
If you have surplus funds outside of superannuation you may consider making after tax contributions to your superannuation fund prior to 30 June. If you are under age 65 you can make non-concessional contributions to your fund up to $150,000 per year or bring forward the following two financial periods and make a one of $450,000 contribution ensuring that no further after tax contributions are made for the next two financial years.
If you are aged between 65 and 74 years of age you are limited to the $150,000 per annum non-concessional contribution only and note that you must meet the work test of being gainfully employed for at least 40 hours within 30 consecutive days in the financial year to make a contribution.
This is a regular periodic payment to a member of a fund who has met a condition of release, usually retirement after reaching age 55, or upon reaching age 65. Self managed superannuation funds can offer various types of pensions depending on what the governing rules (Trust Deed) of the fund allow.
Of recent times, Transition to Retirement Pension Streams have been introduced to allow members to draw pension streams (within some restrictions) while continuing to work.
Pension Payment Obligations
Trustees should ensure that any members in pension phase throughout the 2009 financial year have in fact met there pension payment obligations for the financial year. Clients with Account Based Pensions must meet their minimum obligation whilst allocated and transition to retirement pensions must fall between their minimum and maximum pension range. Failure to do so is a breach of the SIS Act and may see your fund being non compliant with the Act.
Since July 1999, all money (with some exceptions) held in superannuation funds is preserved. Preservation means that the benefits must stay in your superannuation fund until a condition of release is met. This is extremely important to ensure the fund stays a complying fund and is therefore entitled to the 15% tax rate.
Access to funds by a member before a condition of release is met, can result in penalties such as fines, loss of complying status, and in severe cases, even jail for the trustees.
Regulated Superannuation Fund
Only a self managed superannuation fund that has elected to comply with Superannuation Industry (Supervision) Act 1993 (SIS) legislation, and has either a corporate trustee or its purpose is to provide age pensions to its members (individual trustees), is a regulated Superannuation Fund. Only a regulated superannuation fund is entitled to receive concessional taxation rights.
Currently, anyone who retires from employment after age 55 and never intends to be employed or self employed again for gain or reward*, may commence an income stream from their self managed superannuation fund (as opposed to waiting until age 65 for a Centrelink pension). However, this retirement age will change depending on when the person is born; gradually increasing to 60 years, as shown in this preservation table below:
*for more than 10 hours per week in any business, trade, profession, vocation, calling, occupation or employment.
If the person was born: then he/she can retire at age:
Before 1 July 1960 55
1 July 1960 - 30 June 1961 56
1 July 1961 - 30 June 1962 57
1 July 1962 - 30 June 1963 58
1 July 1963 - 30 June 1964 59
After 30 June 1964 60
Any amounts transferred into a superannuation fund by way of benefits from another superannuation fund or an Eligible Termination Payment (ETP) is called a rollover.
Salary Sacrificed Superannuation
This is an arrangement between an employer and employee that an agreed amount of the employee's income (for example some or all of their next pay rise or bonus) can be deducted from their pay before it is taxed. The employee pays tax on the remaining salary and does not pay tax on the amount sacrificed. Fringe Benefits Tax (FBT) does not apply as superannuation is specifically exempt from FBT.
The agreed amount goes into your superannuation fund as an employer contribution and is taxed at 15%. The result is that more money goes into the fund than if the contribution went in out of your after tax dollars.
Be aware that not all employers provide the opportunity for salary sacrificing arrangements, nor do they all allow you to direct them as to which super fund the money goes into. Choice of superannuation rules come into force from July 1 2005, however not all employers will be covered by this new regime and you may still not be given a choice as to where your superannuation is to go.
Self Managed Superannuation Fund
A Self Managed Superannuation Fund (SMSF) is one where all the investments of the fund, management, administration and compliance responsibilities are looked after by the members themselves in their capacity as trustee.
A SMSF can only have 4 or less members, all members must be also be trustees (or directors of a trustee company), and to receive taxation concessions, it must be a complying fund at all times. Trustees are allowed to appoint external administrators and advisors to assist in the running of their fund. Should you require any assistance in the running of your fund, please do not hesitate to contact Global Superannuation Services Pty Ltd, we offer tailored service packages according to your needs.
Sole Purpose Test
For a superannuation fund to qualify as a regulated superannuation fund and thereby be granted concessional tax status, the fund must comply with the Sole Purpose Test.
The Sole Purpose Test requires that the fund be maintained in order to provide benefits upon retirement or reaching age 65. Broadly, this means that money in the fund is ONLY to be used for retirement.
Employers are required to contribute a minimum percentage of earnings to superannuation on behalf of all qualifying employees. Currently the minimum requirement is 9% of the gross wage. If employers fail to contribute in accordance with the Superannuation Guarantee Act (1992), then they will incur a non-deductible penalty ,and may also be charged interest on the outstanding amount.
This legal document sets out the rules for the establishment and ongoing operations of the fund. It should have provisions in it that cover such things as membership rules, contributions, trustee obligations, pensions and record keeping.
It is imperative that the Trust Deed is reviewed regularly and kept up-to-date. Superannuation law changes constantly and some of the changes over the past 5 years have been major. The problem is that if the law allows something and the deed doesn't, then the trustees are bound by the deed, and on the other hand if the deed allows something and the law doesn't then the trustees are bound by the law.
A person/company who has been appointed under the Trust Deed to operate the fund on behalf of the fund's members. A trustee for a self managed superannuation fund can either be an individual trustee or a corporate trustee. In the case of a corporate trustee, all directors of the company must be members of the fund. Where there is only one member of a self managed fund, there must still be either two individual trustees or a sole director company as trustee.
The Trustee has to ensure the fund runs within legislative requirements and also within the governing rules of the trust deed. Trustees must always act in good faith and in the best interests of the members. For example, trustees must make investment decisions in accordance with a formulated investment strategy and should monitor the investments to ensure they are performing as expected.