Australia’s #1 Self Managed Super

What entitlements does your Australian Superannuation allow for?

Planning for your retirement is not a game, but if it was you would want to understand the rules wouldn’t you? Playing a game you don’t know the rules for is not only boring and frustrating you are also sure to lose. That is the problem with going into your Super without understanding the tax rules that govern them, you are bound to lose money or at least save less money depending what your perspective is.

The problem for many of us is that “tax law” sounds like a four letter word. Few things sound so complicated and dry as delving into the intricacies of tax law. This is completely understandable. Rules in general are dry and boring. I remember when I lived in Nicaragua I was first introduced to base ball. The game has always seemed to me rather boring and repetitive. However it is the national sport so I decided to give it a chance and learnt the rules. The game still seems a little dry, not worse than cricket though, but much more enjoyable once you understand the rules that regulate it.

Something similar happens to tax deductions and your super, it never becomes great fun but you will probably get a kick out of the savings you make when you understand the basic principles of Superannuation and tax deductions.

For a full description of the requirements to file tax deductions on your Super please check our blog article “How to claim deductions from your Super Payment”. This article will focus on secondary questions you might have in relation to Tax and your Superannuation fund. In particular we will answer the questions:

Can I claim a tax deduction for amounts split to my spouse?

What are the effects of claiming a deduction for Super?

And Can I claim a deduction for amounts paid through salary sacrifice?

This article will provide a short overview of these questions and supply more detail in further articles.

Can I claim a tax deduction for amounts split to my spouse?
The quick answer is yes, but let’s elaborate a little with these two scenarios:
a)    To claim a tax deduction for personal contributions you must make a claim to your super fund or attached pension fund the same financial year and meet the general conditions explained in previous articles.
b)    In order to split or part these contributions you must complete a valid notice of intent to claim a deductions. The form you must fill is found at the Taxation Office website www.ato.gov.au as Superannuation contributions splitting application (NAT 15237). You must file your notice of intention to claim before you send the contributions splitting application form.

What are the effects of claiming a deduction for super?
The main consequence is that the Government will not provide you with co-contributions on the amount you claim. Co-contributions are payments the Government do to match your Super contributions up to a certain limit. If you make savings on your tax you do not receive this incentive.

Can I claim for amounts paid through salary sacrifice?
Sorry, you can’t. This is because payments made through salary sacrifice are deemed to have been made by your employer and not you and you can therefore not claim tax deduction on them.

Superannuation And Tax, What You Need To Know

Saving for your retirement is one of the most important things you can in you working life. With life expectancy growing and growing it is not strange for a person to reach late 80’s to mid 90’s and even people in their hundreds are becoming more and more common. Typical retirement ages are still around sixty to sixty five depending your type of employment, gender and country, which leaves you up to thirty years after retiring. To this one must add the fact that the population is becoming older and older and there are less people in working age to pay for the pensions of retired workers.

All of these factors make it very important for all of us to make the most of our pension fund. It is not only a matter of surviving during your retirement but having enough spare cash to travel, some of the little luxuries of life or just buy some presents for the grandchildren. Unless you are independently wealthy  the only way you are going to have to save the old fashioned way, that is, early and often in order to have enough for when you retire.

A significant amount of your super contributions will go toward tax so it makes sense to work out how much you are going to pay towards tax, how to pay it and how to minimize your tax costs.

Paying the tax on superannuation is a relatively easy operation as most of the steps are automated by the system. There are three main factors that determine how much tax you will be obliged to pay.

You will need to know:
1)    What part of your super payout is taxable and what is tax free.
This will depend on where you work and what type of accounts you have paid into to build up your super. If you have worked for the government you might have received tax free super contributions. You might also have received tax free payments or payments where the tax has already been paid if you have been a member of a different super or pension fund. Whatever the case you can find out by asking your super fund managers what component of your super is still taxable.

2)    The age at which you receive the super payout.
The whole purpose of a super is to help you save for your retirement not earlier. The older you are and especially if you are in pensionable age will determine (among other factors) how much tax you pay.

3)    The payment type you choose.
When you receive a super payment you can choose to get the lump sum and invest it / use it as you wish or receive it as a monthly payments just like a regular pension. If you choose to receive it regularly you allow the super fund to continue investing your pending lump sum reducing the tax rate you will have to pay.