What are they doing to super?

sptrawler · 4 July 2012

If you put your money into super, you pay 15% contribution tax, the earnings pay 15% tax.
So does that mean if you had $400,000 in super and it earns 5% that is $20,000. Then you pay $3,000 tax, plus have to prepay payg tax for next year.
If the money was in the bank and was your only income you would have to pay 19% on the $1800 above the $18,200 which would indicate you would pay $320. That would leave you with $19680.
I guess what I am asking is if you are a low to middle income earner why would you put money in super? If you and your wife, for example, can earn nearly $40,000 tax free outside of super?

ROE · 4 July 2012

sptrawler said:
If you put your money into super, you pay 15% contribution tax, the earnings pay 15% tax.
So does that mean if you had $400,000 in super and it earns 5% that is $20,000. Then you pay $3,000 tax, plus have to prepay payg tax for next year.
If the money was in the bank and was your only income you would have to pay 19% on the $1800 above the $18,200 which would indicate you would pay $320. That would leave you with $19680.
I guess what I am asking is if you are a low to middle income earner why would you put money in super? If you and your wife, for example, can earn nearly $40,000 tax free outside of super?

$400,000 you have outside super, you already paid tax via PAYG or whatever
Super deposit in your account tax free then get tax at 15% contribution

Super tax free both income and capital gain when you reach your retirement age

The number already been worked out, super beats it hand down...

sptrawler · 4 July 2012

ROE said:
$400,000 you have outside super, you already paid tax via PAYG or whatever
Super deposit in your account tax free then get tax at 15% contribution

Super tax free both income and capital gain when you reach your retirement age

The number already been worked out, super beats it hand down...

O.K what about if you are 55, sell an investment and make $400,000 clear profit. Do you put it in super or keep it out if you are unemployed?
I guess what I am getting at is super is good because you can get a reasonable income, tax free in retirement. The more the tax free threshold is lifted the less attractive super becomes. Mainly because it ties up your money in a government manipulated scheme.

sptrawler · 4 July 2012

There is a piece missing in the jigsaw. IMO

Junior · 4 July 2012

If you have no other income, you are correct, keeping your money outside of super may result in less tax.

However, consider the following:

- If you make a 'non-concessional' (after tax) contribution, then there is no contributions tax. Contributions tax of 15% only applies to your mandated employer contributions (i.e. 9% of salary) and before tax contributions (ie. salary sacrifice). This tax is to account for the fact that you have avoided paying income tax on that money, as you've directed in straight into superannuation rather than reporting it as taxable income.

- When you reach preservation age (currently 55 y.o.) you can commence a pension from the fund, once you do this earnings tax falls to 0% in the Fund and CGT falls to 0%.

In some situations there is less tax paid by keeping your money outside of super, however in many situations there can be significant tax savings by moving assets into super.

sptrawler · 4 July 2012

Junior said:
If you have no other income, you are correct, keeping your money outside of super may result in less tax.

However, consider the following:

- If you make a 'non-concessional' (after tax) contribution, then there is no contributions tax. Contributions tax of 15% only applies to your mandated employer contributions (i.e. 9% of salary) and before tax contributions (ie. salary sacrifice). This tax is to account for the fact that you have avoided paying income tax on that money, as you've directed in straight into superannuation rather than reporting it as taxable income.

- When you reach preservation age (currently 55 y.o.) you can commence a pension from the fund, once you do this earnings tax falls to 0% in the Fund and CGT falls to 0%.

In some situations there is less tax paid by keeping your money outside of super, however in many situations there can be significant tax savings by moving assets into super.

That's all very true Junior, however what about a couple who get to 57 and decide to sell their investments. These end up with an after tax profit of $800,000, they can both make an after tax contribution of $400,000 into super( with the 3 yr bring forward). But why would they bother, as they could leave the money more flexible outside super.
I am just trying to work out how this all fits in with the 12% s.g, there has to be a connection.IMO

Junior · 5 July 2012

sptrawler said:
That's all very true Junior, however what about a couple who get to 57 and decide to sell their investments. These end up with an after tax profit of $800,000, they can both make an after tax contribution of $400,000 into super( with the 3 yr bring forward). But why would they bother, as they could leave the money more flexible outside super.
I am just trying to work out how this all fits in with the 12% s.g, there has to be a connection.IMO

Well...if they made a profit in the order of $1 million+ as you're suggesting they would have paid a huge amount of tax via Capital Gains Tax. If those investments were held in super in the first place those could have started a pension and reduced CGT to NIL.

Basically, for anyone with a reasonable accumulation of assets and a decent salary, moving assets into super WILL reduce total tax payable. It's simply a matter of sitting down and applying various strategies to your scenario to work out the best way to move assets in and out of super.

burglar · 5 July 2012

sptrawler said:
... if you are unemployed? ...

I believe that you are not allowed to put into super if you are unemployed.

Julia · 5 July 2012

burglar said:
I believe that you are not allowed to put into super if you are unemployed.

Interesting point. Given Centrelink require people to use up their savings before receiving the dole, the logical recourse would be to put any saved funds into Super, thus bypassing that.

Is there anything saying people cannot do this, Junior?

sptrawler · 5 July 2012

Julia said:
Interesting point. Given Centrelink require people to use up their savings before receiving the dole, the logical recourse would be to put any saved funds into Super, thus bypassing that.

Is there anything saying people cannot do this, Junior?

Any money you have in super is taken into consideration for the age pension, however I don't think it has any effect on welfare before retirement age. I am not certain but this is the sort of issue that the thread should bring out.
Thanks Julia

sptrawler · 5 July 2012

burglar said:
I believe that you are not allowed to put into super if you are unemployed.

You have to differentiate between unemployed and self employed.

burglar · 6 July 2012

sptrawler said:
You have to differentiate between unemployed and self employed.

Ok. I thought I had worded it carefully??!

I believe that I am not allowed to contribute to Super if I am receiving Newstart benefit!

sptrawler · 6 July 2012

burglar said:
Ok. I thought I had worded it carefully??!

I believe that I am not allowed to contribute to Super if I am receiving Newstart benefit!

That is an interesting one, I had never thought about it.
I suppose you are meant to have no money before you get newstart alloawance and the allowance is for essentials, not for a savings plan.
Following on with the though, what would happen if you made a volantary contribution prior to loosing your job. Would that preclude you from recieving newstart?

sptrawler · 6 July 2012

Now the lowest tax rate is 19%, is the 15% tax offset for S.F.R being changed?

Julia · 6 July 2012

sptrawler said:
Any money you have in super is taken into consideration for the age pension, however I don't think it has any effect on welfare before retirement age. I am not certain but this is the sort of issue that the thread should bring out.

Super is definitely quarantined from Centrelink's assessment prior to reaching age pension age.
What I'm less sure about is whether someone with savings outside Super - on becoming unemployed - could with immunity place those funds into Super just for the purpose of qualifying for Newstart which is means tested.
A phone call to Centrelink would clear this up. My guess would be that you could do it, but I'm not sure.

sptrawler said:
That is an interesting one, I had never thought about it.
I suppose you are meant to have no money before you get newstart alloawance and the allowance is for essentials, not for a savings plan.
Following on with the though, what would happen if you made a volantary contribution prior to loosing your job. Would that preclude you from recieving newstart?

Again, something to ask Centrelink. It would have to fall within the limits for contributions I suppose, but apart from that it's hard to imagine why you wouldn't be able to do it.

sptrawler said:
Now the lowest tax rate is 19%, is the 15% tax offset for S.F.R being changed?

What is S.F.R.? Self funded retiree? If so, that person, in retirement, shouldn't be paying any tax if they have their assets in Super and are drawing an allocated pension.

sptrawler · 6 July 2012

Julia said:
What is S.F.R.? Self funded retiree? If so, that person, in retirement, shouldn't be paying any tax if they have their assets in Super and are drawing an allocated pension.

I am thinking of a self funded retiree between 55 - 60.
After 60 the fund becomes completely tax free.
Between 55 and 60 if the fund is in the pension phase, its earnings are tax free however the pension is taxable depending on the type of contribution allocation i.e concessional or non concessional.
However there was a 15% tax offset that meant the first $37k or so was tax freee, I was wondering if this has been adjusted in line with the new tax scales.
Thanks for your responses.
The super rules are pretty convoluted having a thread where people can bounce some questions and scenarios around, I think will be helpfull.
Even if we don't know the answers it is interesting to get other peoples take on issues.

Happy · 6 July 2012

Numbers keep changing, not sure if it is current, but depending on age you can top up super with lump sum of $25,000 or $50,000

Also you can deposit 3 years worth in one go, every 3 years.

sptrawler · 6 July 2012

Happy said:
Numbers keep changing, not sure if it is current, but depending on age you can top up super with lump sum of $25,000 or $50,000

Also you can deposit 3 years worth in one go, every 3 years.

From my understanding, what you can salary sacrifice is $25k, over 50's could sacrifice $50k but the gov has reduced it to $25k( I think they want you to work longer).

The 3 years worth in one go, from my understanding is regarding the non concessional contribution( after tax, out of your pocket).
You can make a non concessional contribution(out of your pocket) of $150k a year, or a one of $450k contribution by bringing forward the next 3 years allowance.
This from my understanding can only be done before you turn 65, after 65 you have to pass the 'work test'.

Julia · 6 July 2012

sptrawler, I'm not sure whether you are actually seeking the answers to the questions you're putting up, or having a hypothetical chat.

If you actually want the answers, I'd suggest making an appt to see one of Centrelink's Financial Information Service Officers. They are just terrific. Completely free of charge and you do not have to be receiving any Centrelink benefit to see them. They give you all the facts, minus the spin which can accompany advice from external financial advisers.

sptrawler · 6 July 2012

Julia said:
sptrawler, I'm not sure whether you are actually seeking the answers to the questions you're putting up, or having a hypothetical chat.

If you actually want the answers, I'd suggest making an appt to see one of Centrelink's Financial Information Service Officers. They are just terrific. Completely free of charge and you do not have to be receiving any Centrelink benefit to see them. They give you all the facts, minus the spin which can accompany advice from external financial advisers.

Yes Julia I am having a hypothetical chat. I am meeting a lot of people who are fast approaching retirement, who have a lot of questions that they are too embarressed to ask. I thought maybe a thread where questions regarding super could be aired, may be worth while. I guess I was wrong.

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