SUPERANNUATION SUMMARY

Superannuation has been specifically designed and endorsed by the Federal Government as the preferred way to save for your retirement, and has added tax benefits that make it particularly attractive.

WHY INVEST IN SUPERANNUATION ?

• Superannuation can be a tax effective way of building wealth for your retirement. The tax rates imposed on superannuation funds are as follows ;
• Investment income is taxed at a maximum of 15%;
• Capital Gains are taxed at a maximum of 10%, provided the asset has been owned by the superannuation fund for at least 12 months;
• When an income stream such as an allocated pension is commenced upon retirement, the tax rate imposed on income and capital gains in the pension account is reduced to zero, and the pension payments may enjoy a tax free amount and a tax offset of up to 15%.

HOW MUCH CAN BE CONTRIBUTED ?

There are no limits on contributions to superannuation by a member, the member’s spouse or the member’s employer. However, there are limits on the tax deductions available. These limits apply to each unrelated employer, where there is more than one employer.

These limits also apply to the self-employed and others who can claim a personal tax deduction for their contributions.

The government has set an age-based limit for tax-deductibility of contributions to a superannuation fund. For 2004/2005, the tax deduction limits are ;

Aged in Years	Deduction Limit ($)
Under 35	$ 13,934
35 to 49	$ 38,702
50 and over	$ 95,980

* These figures are indexed (ie.adjusted annually every 1 July) to reflect movements in the average weekly wage as measured by Average Weekly Ordinary Time Earnings Index.

ACCESS TO SUPERANNUATION

The government also places restrictions on the age at which you can withdraw your benefits from superannuation. This is called the preservation aged and is between 55 and 60 depending on your year of birth.

UNDEDUCTED CONTRIBUTIONS

In order for you to increase the amount of funds available in retirement to help meet your lifestyle goals and objectives, we believe it is important that you invest a portion of your retirement savings in the superannuation environment, where you have access to concessional rates of tax. We therefore recommend you make an Undeducted Contribution into your superannuation fund.

Undeducted Contributions are contribution made to a superannuation fund with after tax dollars. They are not subject to contributions tax or the superannuation surcharge because personal income tax has already been paid. The earnings received whilst in the superannuation environment are taxed at a maximum rate of 15% and do not form part of the fund’s assessable income.

In addition, Undeducted Contributions do not count towards your Reasonable Benefit Limits (RBLs), although the earnings on them do.

Another benefit of Undeducted Contributions is that they can be used to purchase a retirement income stream and this amount (apart from the earnings) is tax free when returned to you over the duration of the income stream.

There are a number of criteria that must be met, in order to be eligible to make Undeductable Contributions to superannuation :

• If you are under 65 and have been “gainfully employed” for at least 10 hours a week in the last two years (gainful employment is working for gain or reward – it does not extend to charity or domestic work) ;
• If you are aged between 65 and 75 and gainfully employed for 10 hours or more a week at the time you make the contribution;
• If you are making contributions on behalf of a spouse who is under age 65 ;
• If you are making contributions on behalf of a spouse who is aged between 65 and 70 and is gainfully employed for at least 10 hours per week.
• If you are aged 65 and disabled – that is you must have left work as a result of the disability and you must be unable to work because of the disability at the time of making the contribution – then you can contribute at any time before 65 without having to satisfy the “work” test.

You should be aware that the Undeducted Contributions are preserved in that they, and all earnings from them, generally cannot be accessed until age 65, or if you retire earlier between 55 and 60, depending on your date of birth.

SPOUSE CONTRIBUTIONS

Contribution to a superannuation fund on behalf of your spouse is one of the many tax-effective ways for a couple to accumulate savings for retirement. This strategy allows you to achieve the tax benefits associated with income splitting when you convert your funds to a retirement income stream.

Individuals can make after-tax contributions into superannuation on behalf of a spouse, however, where the spouse is between the ages of 65 and 70, they must be gainfully employed at least 10 hours a week at the time on contributing.

You should be aware that spouse contribution benefits are restricted in that they generally cannot be accessed until retirement on or after the spouse’s preservation age. However, if the spouse receiving the contribution has never been gainfully employed, the benefits generally cannot be released until that spouse attains age 65.

Another benefit of spouse contributions is that a tax rebate may be available to the contributing partner if their spouse’s annual taxable income is below $ 13,800 for the tax year in which the contribution is made.

In addition, the 2005/2006 Australian Federal Budget proposed to allow each spouse to receive the split contributions in their own separate account.  The significance of having a separate account is that each spouse will have access to their own Eligible Termination tax-free threshold and RBL.
Any future contributions can be made into the superannuation fund, and be invested in line with the recommended investment strategy.

SUPERANNUATION SURCHARGE

Currently, high income earners with taxable incomes over $ 100,000 are subject to a superannuation surcharge of 12.5% on their superannuation contributions.  However, we note that it has been proposed in the recent 2005/2006 Australian Federal Budget that this surcharge will be abolished with effect from 1 July 2005.