How does super work?Types of superEnough super?Account-based pensionTransition to RetirementSurviving a market crashABP and age pensionConsolidate superWhat fees do I pay?Salary sacrifice contributionsGov co-contributionsSG contributionsSpouse contributionsPersonal contributionsDownsizing contributionsLow income offset

How does super work?

Contributions accumulate together with growth on those contributions. The more you contribute and the better growth you enjoy the more you will have to retire on. Compound interest (interest on interest) is the biggest driver of your super balance.

Contributions are taxed at 15% unless your income exceeds $250,000 in which case they are taxed at 30%. Income within the fund is taxed at 15% while it is in accumulation phase. After retirement any super rolled into pension phase (maximum of $1.6 million) is not taxed at any point.

See the calculation of tax on contributions.

What types of super are there?

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The table below shows how the superannuation sector is divided up.

Superannuation fund types (August 2020)

Total assets ($billion)
Small funds (APRA and Self Managed funds) 597
Retail 541
Industry 446
Public sector 354
Corporate funds 54

Distribution of funds funds

  • SMSFs 26%.
  • Retail funds 20%
  • Industry funds 26%
  • Public sector funds 23%.
  • Corporate sector funds 2%.
  • Statutory funds 3%.

1. Small funds

(a) Self Managed Superannuation Funds (SMSFs)

An SMSF must have between 1 and 4 members.

An SMSF is predominately for people who want to control their own superannuation. The trustees, who are also members, choose their investments, investment strategy and specialist advisers. They also take on the responsibility of the fund’s administration such as maintaining records, financial statements, tax returns and audit.

The sole purpose of an SMSF is to provide retirement benefits for its members. This sounds simple enough but many trustees have floundered on this principle by using their fund as their personal bank account or ignoring their own investment strategy.

Unless members have the expertise to set an investment strategy, choose the investments and do all the administration they will have to buy that expertise or put their retirement funds at risk. Specialists cost money and it is generally accepted that unless an SMSF has at least $250,000 it would not be a cost-effective option.

SMSFs have been an extraordinary success story. In 2004 there were 271,515 SMSFs and as at June 2015 there were 556,998 with over a million members, 70% comprised of just two members. Performance has also been impressive. According to the ATO (Australian Tax Office) their average return over 8 years to June 2014 was higher than large super funds. They are also have the largest share of superannuation fund assets. Distribution of funds as at August 2020 is as follows;

(b) Small APRA funds

A small APRA fund (SAF) is much like an SMSF but the compliance obligations are passed onto an approved trustee company.

They can be useful for:

  • Anyone who wants greater control of their super investments but without the trustee responsibility.
  • Families who provide for a relative with an intellectual disability.
  • Those moving or living overseas who can no longer be a member of an SMSF.

2. Retail funds

Retail funds are offered by the big institutions like the banks and AMP. They usually offer;

  • Investment options. Most offer a wide range of investment options.
  • Insurance. Most offer insurance benefits like TPD, Term life and salary continuance.
  • Ancillary benefits. Many have ancillary benefits like cheaper home loans, online access etc.
  • Financial advisers. Most are recommended by financial advisers who charge for their advice.
  • Accumulation funds. They are all accumulation funds. Your contributions accumulate with interest.
  • Fees. Retail funds used to be associated with higher fees but this has changed. Some have low cost offerings like MySuper.
  • Profit. They are all companies with shareholders and a profit motive that drives their decisions.

3. Industry funds

Industry funds were initially for employees of a certain industry. Today the larger industry funds are open to everyone. They usually offer much the same benefits as retail funds;

  • Investment options. Most offer a wide range of investment options.
  • Insurance. Most offer insurance benefits like TPD, Term life and salary continuance.
  • Accumulation funds. They are all accumulation funds. Your contributions accumulate with interest.
  • Fees. Industry funds are associated with lower fees because they don’t carry the cost of a financial adviser. They also don’t have shareholders and can concentrate on benefits to members.

4. Corporate funds

A corporate fund is a super fund open only to employees of the employer sponsoring the fund. The fund may be controlled by a board of trustees comprising the employer and employees or it could appoint an independent trustee.

Typical features are;

  • All profits are given to members. There are no shareholders sharing them.
  • A large range of investment options.
  • Most are accumulation funds but some may still offer a defined benefit. A defined benefit is usually ‘defined’ as a percentage of final income (often around 2%) multiplied by years service. So 50 years service means the member will retire on 100% of his or her final salary. This type of fund used to be common but has become a rarity as employers divested themselves of the risk of having to pay these pensions in an aging population.

5. Other funds

5a. MySuper

MySuper is the new default account for employees who don’t choose a superannuation fund. This will become their default choice. MySuper is characterised by;

  • Lower fees.
  • Fewer options.
  • Investment options related to ‘stage of life’. Usually this means the investment option becomes less risky as the member approaches retirement.
  • The ability to opt out of insurance.

5b. Eligible rollover funds

These funds are a holding account for lost or inactive members who have relatively low balances. There is a disparity of costs and returns and so members with low balances could find them decimated by fees and poor returns.

How much super is enough?

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Calculate – do I have enough super?

The table below is the ASFA (Association Of Superannuation Funds of Australia) suggestion of what is “enough super”.

ASFA Retirement Standard – June Quarter 2020

Annual living costs Weekly living costs
Couple – modest $40,440 $775
Couple – Comfortable $62,083 $1,189
Single – Modest $27,987 $536
Single – Comfortable $43,901 $841

Enough super?

Assuming an average salary of $74,724 pa, and 30 years to retirement, employer contributions (9.5% of salary) alone would generate $730,393 if growing at a net rate of 7% pa. If inflation averaged 2.5% during this time the real purchasing power of the final amount would be just $341,739. Assuming a net income of 5% in retirement, your super would generate $17,087 pa.
In order to meet the modest goal of $23,662 you would need to make salary sacrifice contributions of $3,000 pa. for the full 30 years. To obtain the “comfortable” goal of $42,861 you would need to salary sacrifice $11,900 pa till retirement.

The crucial factors are;

  • Time. The longer you contribute and enjoy growth the better.
  • Returns. The higher the returns the better. If returns were a net 9% instead of 7% in the example above you could achieve a “comfortable” retirement by salary sacrificing just $5,400 pa.
  • Inflation. Inflation can ravage your savings. If inflation was 6% pa instead of 2.5%, the real purchasing power would be just $114,128 instead of $341,739.
  • Contributions. The more you contribute the better and salary sacrifice contributions are a tax-effective way to do this.

Account-based pension

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Calculate – account-based pension

An account-based pension is an income stream purchased with a lump sum from your superannuation fund. You must meet a condition of release such as reaching your preservation age (see below) or starting a TTR pension. From 1 July 2017 the total amount of superannuation that can be transferred into pension phase is capped at $1.6 million (The Transfer Balance Cap – TBC). This value is net (not gross) and so any loans like a limited recourse loan can be deducted.

Members with a balance in excess of $1.6 million will need to either:

  • transfer the excess amount to a superannuation account in accumulation phase; or
  • withdraw the excess amount from their account.

Any excess over the $1.6 million will be taxed as excessive non-concessional contributions.

The TBC will be indexed in $100,000 increments in line with the consumer price index (CPI). Where a member has used all the TBC then indexation no longer applies. If only  a proportion of the TBC has been used then the unused portion will continue to be indexed.

Equities held in pension phase are valued at their cost base on 30 June 2017 which could be lower than the market value. This means there could be CGT relief that can be applied to an investment gain in the fund.

Preservation age

Date of birth Preservation age
Before 1 July 1960 55 years
1 July 1960 to 30 June 1961 56 years
1 July 1961 to 30 June 1962 57 years
1 July 1962 to 30 June 1963 58 years
1 July 1963 to 30 June 1964 59 years
From 1 July 1964 60 years

How much has to be withdrawn?

Age Annual % draw-down from 21/22
55-64 4% (currently 2%)
65-74 5% (currently 2.5%)
75-79 6% (currently 3%)
80-84 7% (currently 3.5%)
85-89 9% (currently 4.5%)
90-94 11% (currently 5.5%)
95+ 14% (currently 7%)

You can withdraw lump sums (unless it is a TTR pension) at any time or roll the pension back into accumulation phase. The pension is not guaranteed and will be paid until it is exhausted. If you die the pension will be paid to;

  • Your estate, or
  • your beneficiaries, or
  • the reversionary beneficiary (if any).

If the reversionary beneficiary is a child they will receive the payments until turning 25 and then the balance will be paid to them as a lump sum.

A spouse or dependent may receive the benefit as a pension or lump sum. Non-dependents must take the benefit as a lump sum.

The pension is assessed by Centrelink. Click here for more details.

Other benefits include;

  • No tax is paid on the pension unless it is a TTR pension in which case 15% will be paid under government proposals.
  • Payments are received tax free after age 60.
  • Between ages 55-59 the taxable portion is added to assessable income with a 15% offset.

Members need to be sure there is no conflict between any binding nomination form and the reversionary beneficiary of the pension.

Transition to Retirement (TTR)

Calculate – TTR

A transition to retirement strategy allows someone who has reached preservation age and still working, to access their superannuation by buying a pension. This pension cannot be converted back to a lump sum. The additional income can be used to either boost their superannuation or to supplement income should they choose to work fewer hours and therefore earn less income.

Strategy #1: Boost your superannuation

Buy an “Account Based Pension” and draw down between 4% and 10% of the account balance. From 1 July 2017 the interest free concession has been lost and earnings are taxed at 15%. The $1.6 million cap will not apply to TTR pensions.

You then make a salary sacrifice contribution to your super fund and use the pension to replace the salary you have forgone.

Case study

Current ($) With TTR strategy ($)
Gross salary $100,000 $100,000
Less Salary sacrifice contribution $0 -$25,500
Plus TTR pension $0 $20,600
Taxable income $100,000 $95,100
Tax plus Medicare -$26,947 -$25,134
Less pension offset $0 $3,090
Net tax -$26,947 -$22,044
Disposable income $73,053 $73,056
SG contributions $9,500 $9,500
Salary sacrifice contribution $0 $25,500
Investment returns $18,000 $18,000
Less 15% contributions tax -$1,425 -$5,250
Less Pension drawdown $0 -$20,600
Less Tax on earnings -$1,440 -$1,440
Benefit to super in yr 1 $1,075

Strategy #2: Use the pension to supplement your salary

If you decide not to reinvest the pension but to use it to supplement a reduced salary it could look like this;

Current ($) With TTR strategy ($)
Gross salary $100,000 $70,000 ($30,000 less)
Less Salary sacrifice contribution $0 $0
Plus TTR pension $0 $24,078
Taxable income $100,000 $94,078
Tax plus Medicare -$26,947 -$24,637
Less pension offset $0 $3,612
Net tax -$26,947 -$21,025
Disposable income $73,053 $73,053

Notes

You would only need to withdraw $24,078 to replace the $30,000 drop in salary.

From 1 July 2017 the interest earned on TTR balances increased from 0% to 15%. This will be offset by any franking credits. On top of this, the concessional cap reduces to $25,000 a year so people receiving a TRIS will be taxed more and many will be forced to contribute less.
The loss of exemption on fund earnings does not affect the pension itself which will continue to enjoy the 15% offset.
It is advisable to obtain the assistance of a qualified financial adviser to choose the best pension, draw down amount and salary contribution.

Will my super survive a market crash?

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Calculate – surviving a market crash

A market correction can have a devastating effect on your retirement plans. If you have enough to survive there is every chance your balance will recover and even increase. The crucial factors will be;

  • How much super you have.
  • How severe the turn-down.
  • How long it lasts.
  • How much you draw down.
  • How robust the recovery.

When returns can’t cover draw downs

The larger your balance the more likely you will survive the crash. Assuming you had a balance of $1,000,000 in a fund earning a net 5% pa from which you drew down $50,000 pa. This will leave the balance almost static – you withdraw as much as is earned.

During a market crash your balance is eroded by negative performance as well as the $50,000 pa you need. When the market bottoms out you will need much better performance than 5% to cover your $50,000 withdrawal and the likelihood is you will need to draw down capital.

As you draw down capital the depleted balance reduces further and the situation deteriorates. Only stellar returns will restore the situation to where it was before the crash.

The 1987 crash was followed by stellar returns and 10 years after the crash the retiree in the example above would be almost back to the original balance of $1,000,000 having withdrawn $50,000 pa throughout. After 8 years the balance would have been $671,192.

The GFC has seen a less “robust” recovery and 8 years after the crash (May 2016) the balance would only be around $622,697, close to the 1987 balance.

Will my account-based pension impact my age pension?

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Calculate – impact of super on age pension

Firstly you must be of pension age to get the age pension.

Qualification age

Date of birth Qualification age
1 July 1952 to 31 December 1953 65 ½ years
1 January 1954 to 30 June 1955 66 years
1 July 1955 to 31 December 1956 66 ½ years
1 January 1957 and later 67 years

Under age pension age

If you are under age pension age and not drawing on your super then your super assets are not assessed by Centrelink.

If you are under age pension age and receiving payments from your super fund then your super assets are assessed by Centrelink. The super assets are taken into account for the assets test and may be also deemed to earn an assessable income for the income test.

Pension phase

New rules for account based pensions

New deeming rules came into effect on the 1 January 2015 that apply to all new pensions commenced after this date. The result is your super will be tested twice before you get the age pension. Firstly your super balance is assessed under the asset test and secondly income will be “deemed” to have been earned on the super balance and assessed under the income test. Retirees who do not draw down any income will be deemed to have done so.

The current deeming rate for singles is 0.25% on financial assets (which could include your super balance) up to $53,000 and 2.25% on the balance. For couples it is 0.25% on the first $88,000 of combined income and 2.25% on the balance. For example, a super balance of $300,000 will be deemed to earn (0.25% * 53,000) + (2.25% *balance) = $5,690 pa (for a single person). This would reduce the annual pension by around $1,435 pa.

Old rules

All pensions held before 1 January 2015 will be assessed under the old rules until they choose to change the product and so any changes should be made with caution and appropriate advice.

Under the old rules there is no deeming on a super balance although it is assessed under the assets test. The pension will be assessable under the income test (less a deductible amount representing a return of capital). This deduction prevents the super from being assessed twice which the new rules introduce.

If the pensioner withdraws a lump sum and spends it immediately on food or the mortgage then it is not assessable. If the lump sum is deposited into a bank account then it becomes a financial asset and assessable.

Asset test – fourth quarter 2020

Single homeowners will have an asset limit of $268,000 . Single non-homeowners will have a limit of $482,500.
Couple homeowners will have an asset limit of $401,000. Couple non-homeowners will have a limit of $616,000.
Every $1,000 over the limit reduces the pension by $3 (up from $1.50)

Consolidating super

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Calculate – impact of fees

There are many reasons to consolidate your super into a single fund but fees and the convenience of monitoring a single fund are dominant motivations.

Reduce Fees

Multiple funds means duplicated fees. Typical fees are;

  • Member fees – these are administration fees that will be duplicated in multiple funds.
  • Investment fees (MER) – these are the fees charged to invest your funds usually a percentage of the balance. This is often the biggest cost.
  • Contribution fees – these are the fees charged to collect and invest fees. They would be duplicated in multiple funds.
  • Adviser fees – these are the fees paid to an adviser for personal advice. They would be duplicated in multiple funds.
  • Insurance premiums – these are the premiums paid for your insurance cover in the fund.
  • Other fees – there could be other fees such as establishment fees, withdrawal fees, exit fees, performance fees, switching fees and more.

Over 30 years, a 1% reduction in fees results in a 20% increase in benefit.

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Easier to monitor super

Multiple funds means multiple member statements detailing contributions, performance and fees. The member then has to collate all this information to get an accurate picture.

Consolidating all your funds into a single fund means there is only one member statement which will give an accurate picture of your superannuation arrangements.

Overall spring clean

Consolidation is an opportunity to give your super a “spring clean” and address the other important elements of your super.

  • Insurance. Which fund offers the best cover at the best premium? Be sure you will get cover in the new fund before switching.
  • Returns. Past performance is no guarantee of future performance but do you expect better performance in any fund?
  • Asset mix. The new fund must have an asset mix that matches your risk profile.
  • Costs. Which fund has the better cost structure.
  • Service. Do any of the funds have a service benefit you value like on-line switching?

If none of your funds have the cost/benefits you are looking for you can rollover your funds into a new one.

What fees do I pay in my super?

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Calculate – impact of fees

You are probably paying some or all of the following fees.

Typical Fees

  • Member fees – these are administration fees that will be duplicated in multiple funds.
  • Investment fees (MER) – these are the fees charged to invest your funds usually a percentage of the balance. This is often the biggest cost.
  • Contribution fees – these are the fees charged to collect and invest fees.
  • Adviser fees – these are the fees paid to an adviser for personal advice.
  • Insurance premiums – these are the premiums paid for your insurance cover in the fund.
  • Other fees – there could be other fees such as establishment fees, withdrawal fees, exit fees, performance fees, switching fees and more.
There is a wide discrepency in total fees. A difference of 1% can mean a reduction in the final value of 20%.

Member fees

Often members in the same fund pay a different percentage with those holding lower balances paying a higher percentage but lower fee. For example, 1% on a $100,000 balance is $1,000. A 0.5% fee on a balance of $1,000,000 is $50,000. Some funds have a cap on the amount of fees a member can pay.

Investment fees (MER)

These are the fees paid to the investment manager and can include a performance fee where some of the growth ahead of a specific return is retained by the manager. This is usually the biggest fee and returns usually make the biggest difference to retirement values.

Contribution fees

Some funds charge an extra fee to collect and forward the contributions to the investment manager.

Switching fees

Some funds charge a switching fee to switch to another portfolio or investment option.

Advice fees

These are the fees paid to an adviser for personal advice. Advisers who sold a fund to an employer were often rewarded with an “advice fee” deducted every month from the members account whther or not they had received any advice. Most members had never seen the adeviser or even knew about the fee.

As part of FOFA (Future of Financial Advice) any ongoing advice fee with a retail client must be supported by a FDS (Fee Disclosure Statement).

Insurance premiums

Insurance premiums are also deducted to cover the cost of providing Death, Disability and Income Protection cover.

Most funds have a default level of cover that can be increased or decreased. This cover is usually cheaper than can be negotiated outside the fund and is alos usually provided without proof of health.

Establishment fee

Some funds may charge a fee to set up all the member records and deductions.

Withdrawal fee

Withdrawal fees can be charged every time a member makes a withdrawal from their superannuation. This is ostensibly to cover the cost of processing the withdrawal.

Exit fee

Exit fees may be imposed on a fund or member who exits in order to move to a new fund with a new provider. This may be seen as a punishment or disincentive to exit but may be warranted if the fund has been paying bonuses that are as yet unearned.

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What are salary sacrifice contributions?

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Calculate – excess salary sacrifice

Salary sacrifice contributions involves sacrificing salary for super contributions. This has the following consequences;

  • Your salary decreases and so does your taxable income. You pay less tax.
  • The contribution is taxed at 15% and so there may not be much benefit for those on low incomes as their salary may have been taxed at a lower rate had they not sacrificed it.
  • If your income is over $250,000 then contributions may be taxed at 30% making the strategy even more challenging.
  • If you are on a higher tax bracket there is an immediate gain as a result of the income being taxed at 15% instead of their higher marginal rate.
  • The contributions boost your retirement savings.

How much salary can I sacrifice?

  • You can contribute and deduct $25,000 pa. This includes your SG contributions.

From 1 July 2017 the concessional contribution limit is $25,000 for all groups. If your super balance is below $500,000 you can carry forward any unused portion for up to 5 years.

I am self employed. Can I salary sacrifice?

Yes, you can make pre-tax contributions in exactly the same way and to the same extent as an employed person. That means you can contribute and deduct (for tax purposes)  $25,000 pa.

For example;

John earns $70,000 pa and makes a salary sacrifice contribution of $10,000. The net benefit is as follows;

No salary sacrifice With salary sacrifice
Gross income $70,000 $70,000
Salary sacrifice $0 $10,000
Taxable income $70,000 $60,000
Tax $15,347 $11,947
Net income $54,653 $48,543
Net benefit 0 $1,900

The net benefit is calculated as the net salary sacrifice contribution (less 15% tax) less the drop in net income. That is ($10,000 * .85) – ($54,653 – $48,543)

Tax on excess contributions

If you exceed the concessional contribution cap the excess is added to your assessable income with a 15% offset to acknowledge 15% has been paid on the contributions. You can release up to 85% of your excess contributions as an alternative strategy.

You are able to carry forward your unused concessional contributions cap space amounts from 1 July 2018  if you have a total superannuation balance of less than $500,000 at the end of 30 June in the previous year. Unused amounts are available for a maximum of five years and will expire after this.
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What are government co-contributions?

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Calculate – government co-contributions

The government co-contribution helps low and middle-income earners boost their superannuation by making a contribution of up to $500 pa. There is no need to apply. If you are eligible and the fund has your tax file number the government will automatically pay t into your account.

In order to qualify you must;

  • Make personal contributions to a complying super account.
  • Have income less than $53,564 (2020-2021 tax year).
  • 10% or more of your total income must come from eligible employment or carrying on a business.
  • Be less than 71 years of age.
  • Not be holding a temporary visa.
  • Lodge a tax return.
  • Have a total superannuation balance less than the transfer balance cap ($1.6 million for the 2019–20 financial year) at the end of 30 June of the previous financial year
  • Not have contributed more than your non-concessional contributions cap.

For example;

John earns $50,000 from eligible employment and makes personal (after tax) contributions of $3,000 to his complying fund. Because his eligible income is below $53,564 and his contribution exceeds $500 he will get the full $500 government co-contribution.

If, for example, he had only contributed $400 then that would have been the maximum government co-contribution.

What are superannuation guarantee contributions?

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Calculate – SG contributions

SG (superannuation Guarantee) contributions are compulsory superannuation contributions employers have to make on behalf of employees. From July 2014 this has been 9.5% of the employees salary.

Proposed SG rate
2015/2016 9.5%
2016/2017 9.5%
2017/2018 9.5%
2018/2019 9.5%
2019/2020 9.5%
2020/2021 9.5%
2021/2022 10%
2022/2023 10.5%
2022/2023 11%
2023/2024 11.5%
2024/2025 11.5%
2025/2026 12%

What is the Superannuation Guarantee?

An employer has to pay the required rate by the quarterly date or be subject to the Superannuation Guarantee Charge (SGC) which is a penalty to the tax office. The SGC includes the SG owing, interest on the outstanding SG and an administration fee.

In most cases the SG is paid into the complying fund chosen by the employee but in some cases it is paid into a fund dictated by a workplace agreement or public sector fund run by state or Federal government. If an employee doesn’t specify a fund then the SG will be paid into a default fund with a MySuper option. MySuper is a low cost fund with restricted options.

Employees earning less than $450 per calendar month and those under age 18 working less than 30 hours a week are exempt.

From 1 July 2017 concessional contributions are limited to $25,000 for all groups. If your super balance is below $500,000 you can carry forward any unused portion for up to 5 years.

SG contributions are currently taxed at 15%. If your combined incomes are over $300,000 then these contributions will be taxed at 30%. The $300,000 limit reduces to to $250,000 from 1 July 2017.

For example;

John earns $50,000 pa. For the 2020-2021 tax year his employer must contribute $50,000 * 9.5% ($4,750). 15% tax will be deducted and so $4,038 will be paid into his superannuation account (less fees).

The concessional contributions cap (which includes SG and salary sacrifice contributions) is $25,000.

From 1 July 2018 you can use up to 5 years worth of any unused portions of your concessional cap if the total of all your superannuation funds is under $500,000 (this excludes super in pension phase). The unused portions start from 1 July 2018 and would allow a member to exceed the $25,000 cap.

What are spouse contributions?

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Calculate – spouse contributions

Spouse contributions

If your spouse has assessable income below $37,000 (plus report able fringe benefits) you can make contributions to his or her superannuation and receive a tax offset of up to $540 for those contributions.

You can’t contribute more than your partner’s non-concessional contributions cap, which is $100,000 per year for everyone. However, if your partner is under 65, you may be able to contribute up to three financial years of this cap in the one year (under bring-forward rules) which would allow a maximum contribution of up to $300,000.

Essential conditions are;

  • you contribute to the eligible super fund of your spouse, whether married or de-facto, and
  • your spouse’s income is $37,000 or less.

You will not be entitled to the tax offset when your spouse receiving the contribution:

  • exceeds their non-concessional contributions cap for the relevant year, or
  • has a total superannuation balance equal to or exceeding the general transfer balance cap ($1.6 million) immediately before the start of the financial year in which the contribution was made.

The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.

The following eligibility requirements remain in place before and after 1 July 2017:

  • both you and your spouse must be Australian residents when the contributions are made
  • the contributions must not be made to satisfy a family law obligation to split contributions with your spouse
  • the contributions must be made to a complying superannuation fund or a retirement savings account on behalf of your spouse
  • you and your spouse must not be living separately or apart on a permanent basis when the contributions are made
  • the contributions must not be deductible to you.

What are personal contributions?

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Calculate – personal contributions

Personal (after tax) contributions can be used to boost your superannuation. Benefits of this strategy are;

  • The contributions boost your retirement savings.
  • You can bring forward 3 years contributions ($300,000) if you are under age 65.

Who can make personal contributions?

  • Anybody under the age of 18.
  • Between the ages of 67 and 75 you must satisfy the work test. This test is waived if your super balance is under $300,000.
  • Personal contributions cannot be made after age 75 without passing the work test.
Work test

To satisfy the work test, you must work at least 40 hours during a consecutive 30 day period each income year in order for your fund to accept a personal super contribution for which you can claim a deduction. The work test exemption applies from 1 July 2019. To meet the work test exemption criteria, you must have:

  • satisfied the work test in the income year preceding the year in which you made the contribution
  • a total super balance of less than $300,000 at the end of the previous income year
  • not relied on the work test exemption in a previous financial year.

For example;

John contributes $300,000 into his super fund using after tax money. As long as this is made no more frequently than every three years he will not have exceeded the contribution cap. If he wants to contribute every year he must make sure that the total in any rolling three year period does not exceed $300,000.

Downsizing contributions?

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From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.

Your downsizer contribution is not a non-concessional contribution and will not count towards your contributions caps. The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million.

The downsizer contribution will count towards your transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase.

You can only access the downsizer scheme once.

Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension.

There is no requirement for you to purchase another home.

What are the requirements?

  • you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
  • the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
  • your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
  • your home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

Low income tax offset

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Calculate – low income tax offset

The Low Income Super Contribution (LISC) will be maintained as the Low Income  Tax Offset (LITO). Members earning less than $37,000 per year receiving concessional contributions will receive a refund of the 15% contributions tax that was paid. The refund is paid directly into their superannuation account.