Superannuation & Tax Advice

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Tax Benefits | Accessing super tax-free | SMSF Investments | Limited Recourse Borrowing Arrangements | Estate Planning | Set up a SMSF

Tax benefits of superannuation

A tax rate of 15% applies to employer and salary sacrificed contributions as well as earnings in a superannuation fund. If your income and super contributions are more than $250,000, you will pay an extra 15% tax (Division 293 tax). The superannuation tax rate is much lower than the highest rate of personal tax of 45%.

Until 30 June 2022, you can take advantage of the tax benefits of superannuation through:

  1. concessional contributions up to $27,500/year (inc employer, salary sacrifice and personal contributions);
  2. catch-up concessional contributions for funds below $500,000 as at 30 June 2019 (the contributions amount depends on prior year concessional contributions);
  3. contributions on behalf of your spouse or de facto spouse. A small personal tax offset applies; and
  4. non-concessional contributions up to $110,000/year (non-deductible) if the fund is below $1.6 million.
Indexation of the above amounts are expected to apply from 1 July 2021.

You can reduce your income tax payable using concessional, spouse and catch up contributions.

You will need to take into account the transfer balance cap of $1.6 million per person from 1 July 2017 (indexed with CPI) which limits the total amount of superannuation that can be transferred into the tax-free retirement phase accounts.

Tax-free superannuation

If you are over 60, retired or starting a transition-to-retirement and have a super income stream, the income is usually tax free.

If you are over 65, you can access your superannuation even if you have not retired.

If you take a lump sum from super fund, you don't pay any tax (unless it was from an untaxed fund such as a public sector fund).

Refundable franking credits

Superannuation funds are entitled to receive refundable franking credits from dividends received (to the extent of the franking). For example, an investment with a 5% dividend yield will have a fully franked return of over 7% if the dividends are 100% franked. This can make investments in Australian companies more attractive than investments in foreign companies, property, bonds or cash.

What investments can I hold in a superannuation fund?

You can hold all types of investments including both shares and property.

There are restrictions however as follows:

  1. there is a general 'sole purpose test' as your fund is required to provide for the retirement benefits to the fund members;
  2. in-house assets are restricted to a maximum of 5% of the fund. Examples include loans to a related party, holiday houses and collectables (eg. paintings, jewellery, wine and boats);
  3. all investments by your SMSF must be made on a commercial arm’s length basis;
  4. there must be an investment strategy which enables diversification of the Fund's investments;
  5. SMSFs are not prohibited from carrying on a business, but the business must be allowed under the trust deed and operated for the sole purpose of providing retirement benefits for fund members; and
  6. investments in derivatives such as CFDs, options and warrants require a Derivatives Risk Statement.

LRBAs & Property ownership

A SMSF can purchase your business premises which enables your business to pay market rates of rent to your superannuation fund.

There are some issues to be aware of including:

  1. a SMSF can borrow money using a limited recourse borrowing arrangement (LRBA), including from you, however, there are strict requirements;
  2. The ATO may consider the trustees are in breach of the law if more than 90% of the Fund is in one single asset or asset class;
  3. alterations are not able to be made to the property until after the loan is paid; and
  4. if your fund cannot pay the loan repayments, you may be forced to sell the property at a loss.
If you are unsure about how to enter into a LRBA, feel free to give us a call.

Estate Planning

A SMSF is an excellent vehicle for estate planning because you can nominate which persons will benefit from your superannuation (including any insurance pay out) separate from your Will.

Should I start a self-managed super fund?

There are a number of key advantages to establishing a SMSF. You can control the investments made by your SMSF including investing in property and shares and you can determine the investment strategy in line with you other investments which may be held personally and/or in a family trust. Secondly, you will be able to manage the overall tax exposure more effectively than if your funds are managed by a retail fund. There is therefore a great deal of flexibility which can be achieved by running your own SMSF. Finally, depending on the size of the SMSF, it may be cheaper each year to operate a SMSF than pay fees to a retail fund manager.

We can assist you to establish a SMSF and provide you with advice for any investment structuring for tax and compliance with the superannuation laws.

Before starting a SMSF, you should consider:

  1. your stage of life;
  2. the ongoing costs associated with being the trustee of your own superannuation fund including the annual accounting and audits fees;
  3. what are the requirements for the investment strategy?;
  4. what minimum balance should I have for the SMSF's investment strategy?; and
  5. the costs of obtaining professional advice.

You may obtain a higher average return if the funds are managed in a retail superannuation fund instead of a SMSF, but that will depend upon the investments in the super fund and the management fees charged by the retail fund manager.

What may be the consequences of a breach of the law?

If you breach the superannuation laws as a trustee of your SMSF, you could be liable to penalties personally and your SMSF may be taxed at 45% because it is a non-complying super fund. Its best to obtain advice before entering into a transaction related to a SMSF.

Future superannuation law changes

Superannuation law is susceptible to changes in the future and the changes may occur by regulation by the relevant Minister. Accordingly, you should obtain legal advice before considering a particular strategy to ensure that there have been no rule changes.

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