How super works

Superannuation can be a tax effective way to save for your retirement. The money comes from contributions made into your super fund by your employer and is ideally, topped up by your own money, if possible.

• Provided you earn over $450 a month, your employer must pay 9.5% of your gross salary into your super fund, these are known as employer concessional contributions. Once the contributions are received by your super fund, they are invested in line with your investment strategy.
• The earnings on your super balance and employer concessional contributions are then taxed at 15%. Any personal top ups are tax-free in your super fund.
• You can access your super once you have reached your perseveration age and you have met a condition of release*.

* There are certain tax implications, based on age, payment type & retirement phase but generally super can be accessed and is tax free from age 60.

Enjoy tax savings

Super funds tax rate is capped at 15%. For most people, super will be taxed at a much lower rate than a similar investment outside super. So, consider the following tax strategies.

• • Salary Sacrificing

Under a superannuation salary sacrifice arrangement, your employer can make additional super contributions when you arrange for some of your pre-tax salary to be paid into your super fund. Your salary for tax purposes is then reduced, saving you money.

Case study: Crystal boosts her super by salary sacrificing

Crystal earns $90,000 before tax. If Crystal decides to salary sacrifice $10,000 of her pay into super, Crystal’s net pay will drop by $6,415, but she will save $3,585 in personal income tax and boost her super by $8,500.

• 10% Rule Abolished

The 10% income test was abolished from 1 July, which means employees can claim a tax deduction in their tax returns for personal super contributions made, provided they are within the concessional contribution cap of $25,000.

• Self -Managed Super Fund (SMSF) Investments

As at June 2011, there was three asset classes representing 75% of all SMSF investments – Australian shares, cash & property. Property has been a big hit; super funds can now borrow and negatively gear to purchase property using an Instalment Warrant Arrangement.

Australian shares, paying fully franked dividends, are popular, since the 30% franking credits are used to offset the 15% super funds tax.

*The information contained in this article is general information and it has been prepared without considering your individual objectives, financial situation or needs. Please contact us at Accumulus Advisory on (03) 93774400 for any further information.