Superannuation

Who is presenting, where are they from?Date?

Janaury 2012

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Agenda

1. What is super?

2. Contributions

3. Taxation of earnings within super

4. Withdrawals

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1. What is super?

2. Contributions

3. Taxation of earnings within super

4. Withdrawals

Agenda

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Super is a tax structure, not an investment!

The government provides various tax incentives for contributing/maintaining funds in super

The catch is that these funds cannot be accessed until you ‘meet a condition of release’

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Overview of the super system

3 prongs of Australia’s retirement savings system Compulsory super (Superannuation Guarantee) Voluntary savings (Including other types of contributions to super) Age pension

2 ‘phases’ of super Accumulation phase Income stream phase (once condition of release is met including transition

to retirement)

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1. What is super?

2. Contributions

3. Taxation of earnings within super

4. Withdrawals

Agenda

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Who can contribute to super?

Anyone under 65

Between 65 and 74 (‘work test’ required)

Age 75 and older (only mandated employer contributions allowed)

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What types of contributions?

Concessional contributions Compulsory (SG) Voluntary (Salary sacrifice and personal concessional)

Non-concessional contributions Personal Spouse Government co-contributions

Other CGT exempt Personal injury

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Contribution limits – concessional

More important to start salary sacrificing earlier than ever before!

9% compulsory super counts towards this concessional cap

Transitional arrangements

Concessional contribution cap 2011/122012/13

onwards

Under 50 years old $25,000 $25,000*

Over 50 years old $50,000 $25,000*

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Salary sacrifice under 50’s

IncomeSuperannuation

GuaranteeMaximum salary

sacrificeMaximum sacrifice

percentage

$100,000 $9,000 $16,000 16.0%

$125,000 $11,250 $13,750 11.0%

$150,000 $13,500 $11,500 7.7%

$175,000 $15,750 $9,250 5.3%

$200,000 $15,775^ $9,225 4.6%

* Ordinary time earnings (excludes SG)^ Employers are obliged to pay SG only up to $43,820 pq/ $175,280 pa (2011-12)

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Salary sacrifice over 50’s

Income*Superannuation

GuaranteeMaximum salary

sacrificeMaximum sacrifice

percentage

$100,000 $9,000 $41,000 41.0%

$125,000 $11,250 $38,750 31.0%

$150,000 $13,500 $36,500 24.3%

$175,000 $15,750 $34,250 19.6%

$200,000 $15,775^ $34,225 17.1%

* Ordinary time earnings (excludes SG)^ Employers are obliged to pay SG only up to $43,820pq/ $175,280 pa (2011-12)

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Contribution limits – non-concessional

Personal contributions capped at $150,000 pa

If under 65 you can bring forward 2 years of cap and contribute up to $450,000

$150,000 $150,000 $150,000 $150,000

30 June 2011 30 June 2012 30 June 2013 30 June 2014

$450,000 $0 $0 $450,000 $0

30 June 2015

$150,000

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Government co-contribution

Co-contribution up to $1,000, dollar for dollar match

Income* up to $31,920 for full benefit or up to $61,920 for partial

A number of criteria including:-– Make a non-concessional contribution – 10% of income from employment or business*– Must lodge a tax return– < 71 years old (at end of financial year)– Not a temporary visa holder (exceptions apply)

If eligible, what could be better than a 100% return!

* ‘Income’ is assessable income (i.e. before deductions) plus a couple of add backs such as salary sacrifice and reportable fringe benefits.

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Spouse contribution tax offset

Tax offset up to $540 for contribution of $3,000

Spouse income up to $10,800 for full < $13,800 for partial

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Other contributions

CGT exempt contributions for small business owners (up to $1,205,000 lifetime limit 2011-12)

Personal injury contributions (cap is compensation amount for personal injury)

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Example salary sacrifice vs. non-concessional contribution

After-tax contributions

Salary sacrifice before tax

Salary excluding SG $75,000 $75,000

Salary sacrifice amount $0 $10,000

Net salary $75,000 $65,000

Income tax, Medicare, Flood levy* ($17,300) ($14,100)

After-tax salary $57,700 $50,900

Net super contributions ($8,500)

Net cash flow $49,200 $50,900

Net benefit $1,700

* Flood levy applies only for 2011-12

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1. What is super?

2. Contributions

3. Taxation of earnings within super

4. Withdrawals

Agenda

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Choose your tax rate!

• 45% - Top marginal rate + 1.5% Medicare Levy• Discount of 50% on capital gains

• 30% Company tax rate• No CGT discount

• 15% on earnings and deductible contributions • 10% on capital gains - CGT discount of 33-1/3%

• Tax free earnings within super when drawing a pension• Tax free pension payments once you turn age 60• 15% tax offset on pension payments if over 55 and under 60

Individual

45%

Company

30%

Super

15%

Pension

0%

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Tax effectiveness of super

Individual Company Super

Start $500,000 $500,000 $500,000

10 years $1,084,548 $1,165,819 $1,244,446

CGT $98,567 $134,556 $47,243

Net amount $985,981 $1,031,263 $1,197,203

Assumptions: Income 3%pa, 100% frankedGrowth 5%paIndividual taxed at 46.5%Company rate 30%Super Fund 15% income/10% Capital Gains taxIncome after tax reinvested

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1. What is super?

2. Contributions

3. Taxation of earnings within super

4. Withdrawals

Agenda

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Conditions of release

To access funds from superannuation via a lump sum or income stream a condition of release must be met

There are various ‘pre retirement’ conditions of release including death, permanent incapacity and terminal illness.

The retirement conditions of release are:-

– Over preservation age (current 55), terminated gainful employment and not intending to seek gainful employment in the foreseeable future

– Genuine termination of a gainful employment arrangement after attaining the age of 60

– Attaining the age of 65

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Date of birth Preservation age

Before 1 July 1960 55

1 July 1960 to 30 June 1961 56

1 July 1961 to 30 June 1962 57

1 July 1962 to 30 June 1963 58

1 July 1963 to 30 June 1964 59

After 30 June 1964 60

Preservation age

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Components of superannuation

A superannuation account consists of 2 components– Tax free component– Taxable component

How these components are determined is often complex

Any withdrawals from superannuation including the commencement of an income stream are paid in proportion between the tax-free and taxable components

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Additional pre-retirement condition of release (income stream only)

Requirements Must have reached your preservation age Account based pension (allocated pension) Pension payment: between 4% -10%* Non-commutable

Strategies Income swap ‘Replace’ income as a result of moving from full time to part time employment Pay off a mortgage sooner Other variations

* The Government has allowed 75% reduction for minimum payments for 2011-12, 2012-13

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Taxation of super components

As the name suggests, the tax-free component is tax free

The taxable component (element taxed), when withdrawing super as a lump sum

Element taxed in the fund

Age Superannuation lump sum tax rate*

60 and over Nil

Preservation age – 59 First $165,000 Nil

Amounts over $165,000 16.5%

Below preservation age 21.5%

* Includes Medicare excludes Flood Levy

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Age of pensioner % of pension capital*

Under 65 4%

64 – 74 5%

75 – 79 6%

80 – 84 7%

85 – 89 9%

90 – 94 11%

95 or more 14%

Important: Maximum for Transition to Retirement (TtR) is 10% No Pro-rata maximum on TtR! 75% reduction applies to the minimum income payment for the 2011/2012 and 2012-13 financial years.

Pension minimum payment limits (cont.)

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Taxation of income streams

Tax-free portion is tax free

Taxable portion

Age Taxed element in the fund

60 and over Tax free

Preservation age – 59 Marginal tax rates*15% tax offset

Below preservation age Marginal tax rates

* A 15% tax offset available calculated on the taxable amount

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Example of lump sum withdrawal

Bernard is 56 years old with a superannuation balance of $400,000 The tax-free portion of his balance is $50,000 and the taxable portion

$350,000 He has not made any superannuation withdrawals previously How much tax will he pay if he withdraws $200,000 as a lump sum (ignoring

Medicare levy)?

Withdrawal occurs in proportion: $50,000 / $400,000 * $200,000 = $25,000 is tax-free component, therefore $175,000 is taxable component

Tax-free component is tax free First $165,000 of taxable component is taxed at 0%, remainder taxed at

16.5% $10,000 * 0.165 = $1,650

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Example of income stream payment

Laura is 56 years old with a superannuation balance of $400,000 The tax-free portion of her balance is $50,000 and the taxable portion

$350,000 She rolls the funds into a superannuation income stream, and draws 4% as

an income payment on 1 July What is assessable income that is generated from the pension in the first

financial year? What is the amount of the 15% tax offset

Pension paid = 4% * $400,000 = $16,000 Tax free portion = $50,000 / $400,000 * $16,000 = $2,000, therefore

taxable portion = $14,000 Therefore assessable income = $14,000 Tax offset = $14,000 * 0.15 = $2,100

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BT Portfolio Services Ltd ABN 73 095 055 208 (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers SuperWrap including SuperWrap Essentials (SuperWrap). BT Funds Management  Limited ABN 63 002 916 458 is the trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to Wrap and SuperWrap (Wrap Products) is limited to distributor only. This document has been prepared and is provided solely for the general guidance of advisers and has been prepared without taking into account any individuals objectives, financial situation or needs. The information in this publication provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. This disclaimer is subject to any contrary requirement of the law.  Information current as at 1 January 2012. © BT Funds Management Limited 2012.