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 call us on Phone: 07 5641 4134. 

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.

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 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.

See retirement income tax.

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 $205,000.

• 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.

Please contact us on Phone: 07 5641 4134 if you seek further assistance on this topic.

Source : Moneysmart.gov.au December 2020

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 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. 

The Reserve Bank’s decision this month to cut the official interest rate to a record low 0.1 per cent was another wake-up call for Australians heavily reliant on income from savings, especially many retirees.

A look at the latest domestic monthly banking statistics shows that at the end of October Australian households collectively had $1.1 trillion deposited in savings account products. Household deposits have been increasing steadily over time.

The four largest banks – ANZ, Commonwealth Bank, NAB and Westpac – hold more than $800 billion of total household cash.

The bulk of these accounts are paying no interest at all, although some products are offering new accountholders promotional bonus rates of around 1 per cent that expire after a few months.

To get a higher savings interest rate one needs to open a term deposit account. Currently it’s possible to lock in a fixed rate of around 1.5 per cent on a three-year term, with four and five-year terms slightly lower at around 1.3 per cent.

However, there are other alternatives to savings accounts and term deposits.

Managed cash funds

Cash is essentially the lowest-risk asset class, and typically suits investors with shorter investment time frames needing quick access to funds.

Investors wanting an income return and a relatively stable capital value also could consider a managed cash fund.

Managed cash funds provide the potential to earn higher returns than bank accounts and term deposits and invest in a range of high-quality, short-term money market investments (that usually mature in 12 months or less).

A key advantage over term deposit accounts is that cash funds provide full liquidity, so funds can be accessed within a few days instead of being locked away for a set period of time.

By investing in a diversified portfolio of securities, cash funds also are less exposed to the performance fluctuations of individual securities.

Managed bond funds

Bonds are securities that can provide a steady and reliable income stream and usually offer a higher interest rate, or yield, than cash.

Total bond returns can include income from interest payments and growth from bond price fluctuations.

When you invest in bonds, you’re effectively lending your money to the bond issuer for a set period of time, in return for interest paid over the term of your investment. Your investment, or capital, is then paid back to you in full at the end of the investment term.

Alternatively, individual bonds can be traded at any time, meaning you can access your capital before a bond’s maturity date.

Bonds can be invested in directly, however a growing number of investors are gaining exposure to bonds through managed bond funds.

Managed bond funds provide a cost-effective way of accessing a diversified portfolio of bonds, which can include a large mix of Australian and international government bonds as well as bonds issued by companies.

Bonds are a low- to medium-risk investment suitable for investors with a timeframe of three years or more.

In addition to providing a regular income stream – an important feature for many investors – bonds may provide a stabilising effect during periods of share market volatility.

Lower for longer

In announcing the latest official interest rate cut, the Reserve Bank said it expects the cash rate to remain at its current level (close to zero per cent) for at least three years.

That, of course, means ultra-low savings and term deposit account returns for an extended period of time.

Contents insurance covers your household items and personal belongings if they’re damaged, lost or stolen.

This can include your furniture, clothes, computer, fridge, television, tools and jewellery.

If you own your home, you can bundle your contents insurance with your home insurance. This is usually cheaper than having separate policies.

Getting the right contents insurance

When choosing contents insurance, think about the value of your belongings. Ask yourself what you could afford to replace or lose if something went wrong.

More than most, small business owners are responsible for ‘knowing their numbers’. But what happens when financial literacy is variable across the board?

For many small business owners their day can be as colourful as a rainbow, juggling anything from products, to suppliers, marketing, and customer service.

They’re expected to be the jack of all trades, learning and adapting as they grow — the success of the business reliant on the knowledge of the owner; even more so if you’re a sole trader.

It follows then that small business owners are also expected to know finance and have a knack for numbers.

While some owners will be talented wordsmiths, able to spin a yarn for a Facebook advert, others will shy away from putting their services out there. The same can be said for owners with no financial background expected to do taxes, accounting, forecasts and revenue projections.

The difference being that you don’t get to choose the latter, and finance is key to your continued success as a business owner.

Financial literacy is a crucial part of your learning as an owner and a vital ingredient in your recipe for growth — healthy numbers reduce overheads, provide security, reduce stress, and is one less thing to worry about when you’re already beginning to feel like an octopus.

Let’s explore ways to make the numbers add up.

1. Join the dots

Budgeting is simple and you can start with something as simple as detailing your projected spending with your actual spending.

Approach this process with positivity and consider it a regular health check to adjust your projections as you progress.

2. Back to skool

Your homework this week is finding an hour to learn and absorb any resources you can on business and finance – you may even begin to enjoy it.

Listen to relevant podcasts, (I’m a big fan of Daily Mind Medicine, by Taylor Welch) and highly recommend Forbes and Business Insider to get you started.

Read the finance and business sections in media outlets — digest a little everyday and it’ll soon begin to make sense. Your regional news outlet will also cover business and give you a great sense of the local market.

3. Now for the real homework

Due diligence is something you’ll hear a lot when you start your business, and it’s important homework to hand in.

Research is your friend when it comes down to choosing your bank, loans, credit cards, suppliers, and even software.

Look at the reviews, further your understanding of interest rates and lending criteria. Your systems and software need to be in good shape — your tech stack is vital to the smooth running of the day to day, choose wisely and consider your options.

4. Keep it real

Late invoices are the thorn in the side of almost every small business, and it pays to be upfront about payment terms. You’re providing a valuable service and you should command the price you deserve — ensure you’re exploring every payment option to meet the demands of your business and provide a contingency.

Understanding your cash flow goes a long way towards achieving basic financial literacy for a small business operator, giving you a snapshot of what’s coming in and out, and what an average week or month might look like.

5. Tidy business

Remember, the healthier your business, the happier you’ll be. Invest time in yourself and your business will reap the benefits; it will also help you sleep better at night knowing you’re completely across everything and prepare for the unexpected.

During these uncertain times, the phrase ‘not all superheros wear capes’ has been frequently used, and I say this to the small business owners I meet. They’re providing food for the table, have the courage to march confidently in the direction of the dreams, have learnt to adapt and survive during a pandemic, and truly are the backbone of our economy.

I am in awe of the many owners I meet and am always left humbled by their vision, their motivation and desire to make their way in the world.

Source : MYOB November 2020 

Reproduced with the permission of MYOB. This article by Mel Power was originally published at https://www.myob.com/au/blog/improving-financial-literacy-for-business-owners/

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.

You can get your super when you retire and reach your ‘preservation age’ — between 55 and 60, depending on when you were born.

There are special circumstances where you can access your super early.

When you can get your super

You can get your super when you reach your ‘preservation age’. Your preservation age depends on when you were born.

If you haven’t permanently retired

If you have reached your preservation age but haven’t permanently retired, you can still access part of your super via a transition to retirement pension.

If you’re in a defined benefit fund

You may be able to access a defined benefit pension from age 55, regardless of when you were born. Check with your fund. Eligibility requirements are different for each fund.

Getting your super early

In some circumstances, you can access your super before you reach your preservation age:

• Incapacity — if you’re unable to work or need to work fewer hours because of a medical condition.

• Severe financial hardship — if you can’t meet your living expenses and have been receiving Commonwealth benefits for 26 weeks.

• Compassionate grounds — to pay for unpaid expenses. These could include medical treatment, modifying your home or vehicle because of a severe disability, funeral expenses, or a loan repayment to prevent you losing your home.

• Terminal medical condition — if you have a terminal illness or injury.

If you need to access your super for any of these reasons, a financial counsellor can help with:

• understanding your options

• how to apply

• other expenses you’re struggling to manage, such as housing and bills

See early access to your super on the Australian Taxation Office (ATO) website for more information.

There are heavy penalties for breaking the rules around accessing your super early.

COVID-19 and early access to super

You can apply to access up to $10,000 of your super if you have been financially affected by the coronavirus until 31 December 2020.

Your super is your retirement savings. Before you apply to access your super consider all your options.

Using super to buy your first home

If you’re buying your first home, you may be able to access super contributions under the First Home Super Saver Scheme (FHSSS).

The scheme allows you to make voluntary super contributions to your super account to save for your first home. You can then apply to access those contributions and their earnings to buy your first home.

Eligibility criteria and savings limits apply.

See first home super saver scheme on the ATO website for details.

Please contact us on Phone: 07 5641 4134 if you seek further assistance on this topic.

Source : Moneysmart.gov.au December 2020 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/getting-your-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 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.

Many of us spend a great deal of time planning for our retirement but understandably, often do not put the same degree of effort into planning for our deaths. It is not always a pleasant topic to think about, nor is it a commonly understood process. It is however a way of caring for your loved ones even after you pass, and one that will ensure your assets go where you want them to.

Good planning can also help your heirs minimise trouble when administering your estate—and may even reduce taxes and costs.

For most people, estate planning involves simply creating a will. While this is an important first step, sometimes having just a will is not enough when it comes to your investments. Many overlook the role of superannuation in the estate planning process.

Unlike your home and car and the money in your savings account, the investments held in your superannuation fund do not form part of your estate when you pass. That means that they cannot be dealt with by your will.

The reason for this is that, from a legal point of view, your super fund is a trust set up to fund your retirement. You don’t actually own the assets held in that trust, so in most circumstances, you can’t pass them on in your will.

Instead, super left behind after death must be dealt with in very specific ways. For starters, super can only be paid after your passing to an eligible beneficiary, usually your spouse or children, but also anyone financially dependent on you or your estate.

Handling this poorly can lead to undesirable outcomes. In the absence of suitable planning, the trustee of a super fund has discretion on which beneficiaries may inherit the super. In one famous legal case, a trustee paid everything from her father’s super fund to herself, leaving nothing for her brother.

There are two main ways to handle your super after death and both must be arranged before you pass.

The first is called a Binding Death Benefit Nomination. This important document sets out instructions to the trustee of your super fund saying how you want your death benefits (a rather macabre term that basically means the value of your remaining super) to be distributed. Provided the nomination is valid—and there are series of rules about validity including setting out precisely how it should be written, signed and dated—the trustee must follow the instructions.

The second main way to control who inherits your super after you pass is called a reversionary pension. This is an estate planning technique available to people who receive, or are about to receive, a pension from their super fund. Simply put, it is an instruction to the trustee to keep on paying your super pension to someone else after you are gone, usually your spouse.

Where it can get complicated is the interplay with the recent introduction of a $1.6 million cap on the amount of super that can be transferred to retirement phase, when earnings become tax free.

Inherited super can put your beneficiaries over the limit, forcing them to hastily rearrange their affairs. For a reversionary pension, the law allows a 12-month window after death to rearrange affairs to get back below the $1.6 million cap where required. No such time window is available otherwise.

If you bequeath your super to your estate it can then be distributed as you please, to other people in your life, according to your will. However, there are tax consequences to doing this.

Superannuation is complex at the best of times so it is always worth seeking professional advice from a licensed adviser. When combined with the intricacies of estate planning and wills, there is plenty of scope for the inexperienced to be inadvertently trapped.

By Robin Bowerman, Head of Corporate Affairs at Vanguard Australia.

Please contact us on Phone: 07 5641 4134 if you seek further assistance on this topic. 

 Source : Vanguard July 2020 

Reproduced with permission of Vanguard Investments Australia Ltd

A ‘transition to retirement’ (TTR) strategy lets you access some of your super and keep working.

Setting this up can be complicated, so contact your super fund or financial adviser for advice.

How transition to retirement works

If you’re aged 55 to 60 and still working, you can use a TTR strategy to:

• supplement your income if you reduce your work hours, or

• boost your super and save on tax while you keep working full time

Starting a TTR pension

You can start a TTR pension by transferring some of your super to an account-based pension.

You need to keep some money in your super account to continue to receive your employer’s compulsory contributions. Or any voluntary contributions you make.

Government benefits and TTR

Starting a TTR pension may impact your or your partner’s government benefits. Speak to a Services Australia Financial Information Service (FIS) officer for more information.

Life insurance and TTR

You may have life insurance with your super. Check if your cover reduces or stops if you start a TTR pension.

Using TTR to reduce work hours

If you want to reduce your work hours, a TTR strategy can top up your income.

Pros

• Continue to receive super contributions — This helps to replace the money you take out.

• Pay less tax — If you are 60 or older, your TTR pension payments are tax free. If you are 55 to 59, your pension is taxed at your marginal tax rate, but you get a 15% tax offset.

• Ease into retirement — You can start planning what you’ll do with your leisure time before you retire completely.

Cons

• Affects retirement income — If you start drawing down your super early, you’ll have less money when you retire.

Case Study 

Alisha reduces her work hours