A tax offset of $540 is available for taxpayers making a non concessional contribution to a complying superannuation fund for the taxpayer?s low income or non working a spouse.

The maximum rebate is available where the taxable income of the low income spouse does not exceed $10800.

The maximum rebatable contribution is $3000.

Certain low income earners may qualify for a government co-contributions if they make eligible personal contributions i.e. non concessional after tax contributions.

• Have income of less than $61920
• Be aged under 71 on 30 June 2011
• If over 65, meet the work rule test
• Lodge an income tax return for the year

The maximum co contribution is $1000 where the person?s income is less than $31920.

Monies can be taken from a Superannuation fund at different points in time relative to a member's age. It is important that you are aware of your rights to take money from your superannuation fund.

Between 55 - 60 (current preservation age)  Transition to Retirement - Member can take a pension & it is reportable or at least the taxable component is with a tax offset equivalent to 15%. Member could also potentially take a tax free lump sum (up to $150,000) if they've retired. Maximum pension cannot exceed 10% of fund value.

Over 60 - If taking pension, non assessable non reportable, no limit to what can be taken if the member has retired. If the member is still working then the limit is 10% of the value of the members fund balance. After 65, there is no limit to what can be taken even if the member is working.

Minimum pension for 2010/11 to be taken prior to 30 June in order to maintain a tax free fund status -

Under 65 years 2%

65 - 74 years 2.5%

80 - 84 years 3.5%

90 - 94 years 5.5%

If you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not exempt income.  This confirms it is the date the payment is received that determines whether a payment is subject to tax.  So the question becomes, was the payment received before or after the person turned 60.  There is no apportionment.

Under the SIS Act, you can start a pension on 1 July 2009; however a payment does not have to be made until 30 June 2010.  So in the year a person turns 60, it is a common strategy to start the pension on 1 July, but to not make the cash payment until the person turns 60.  This means the fund has paid a pension for the full year.  Also, as the member received the cash when he was 60, he pays no tax on it.  This is a very nice tax outcome.

The only time you have to be careful is where payments were made both before and after the person turned 60.  In that case all of the payments before aged 60 are subject to tax (with a 15% rebate).  All of the payments after the person turns 60 are not subject to tax.

Having your Insurance paid from Superannuation

There are a number of insurance types that can be paid tax effectively by superannuation funds on behalf of members. These include –

• Life Insurance (proposed change on the way to make it deductible)

• Total Permanent Disability (proposed change on the way to make it deductible)

• Terminal Medical Condition (proposed change on the way to make it deductible)

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.

Documentation & The Law

Appropriate documentation should be maintained at all times. Ask your self these questions and then have your documents reviewed for completeness.

• Do you know a little about your trust structure, which the trustee is & what happens when you pass away?

• Where are the documents stored?

• Do you have a Death Benefit Agreement or a Death Benefit Nomination? Do you know the difference?

              o A member chooses if a death benefit nomination is binding while

                death benefit agreements are always binding.

              o A non-binding Nomination last until revoked or replaced

              o A binding nomination expires by law after 3 years.

              o A death benefit agreement is always permanent or lasts until the

                member changes or revokes it.

Follow onto 'Having your Insurance paid from Superannuation' for more information.

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.

Pension Planning Strategies for Optimising Inter Generational Wealth Transfers

During the transition to retirement and pension phase, and later during the retirement phase, members of a superannuation fund would do well to consider maximising the tax free component of their member balance. The reason for this is that it makes it a lot easier to avoid potential ‘death duty’. Death benefits paid to a beneficiary can end up being taxed at their marginal tax rate less a 15% rebate. This outcome can be avoided with appropriate planning.

A decision should be made as to what form death benefits take. A spouse may receive death benefits either as a pension or as a lump sum. Usually both forms are entirely tax free, unless the deceased dies under age 60, in which case the recipient spouse pays some tax on the pension until he or she turns 60.

Adult children can usually only receive a lump sum, so it may make sense to have a will that allows for the lump sum to be held in a testamentary trust and paid out to the beneficiaries as an income stream over time.

At death, funds assets may have to be liquidated to pay out death benefits to beneficiaries. At this point, assets that have been held in the fund for a long time may generate significant capital gains on disposal. These gains can be taxed in the fund prior to disbursement of the proceeds to the beneficiaries. Liquidation of these assets while the members are still alive and the fund is in a tax free pension state is a useful planning strategy to avoid these taxable gains arising on death. The ATO takes a dim view of wash sales to resolve this capital gain problem. A wash sale involves selling & then buying back the asset simply to ‘wash out’ the gain. Wash sales are caught under Part IVA of the ITAA 1936 Act. An alternative strategy is to make use of an Anti Detriment Deduction.

The anti-detriment provisions were enacted at the same time the Hawke Government introduced a 15% tax on superannuation contributions, to lessen the political impact associated with the new tax. The intention of the anti-detriment provisions is to ensure that the dependents of a deceased fund member do not suffer any ‘detriment’ because the deceased member was required to pay tax on concessional (deductible) contributions made to the fund during their lifetime. Some of the benefits of using the anti-detriment provisions include -

• The spouse and/or children of a deceased member can potentially obtain a refund of all contributions tax paid by the deceased member during their lifetime. This is achieved by the trustee topping up a lump sum death benefit via way of an anti-detriment payment to ensure that the amount received is the same amount that would have been received had the deceased member’s contribution not been subject to 15% contributions tax.

• The SMSF can claim an anti-detriment deduction which can then be applied against current or future assessable income.

Anti-detriment payments require planning as the payments require a reserve to be paid from. Once members of a fund turn 55 (current Transition to Retirement Age) it is worth considering various pension strategies to minimise tax.

‘Reserving’ can be used to provide pension flexibility, boost pension account balances to ensure there is enough funding for the pension, fund death benefits and fund anti-detriment payments.

The fund or a portion of the fund can be put into a tax free state by starting members on a pension. Transition to retirement pensions are best paid from tax free components or with the aid of tax free lump sums. Due to proportioning rules, this can take forethought and planning.

Follow onto 'Documentation & The Law' for more information.

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.

Tax Minimisation during the Accumulation Phase

Maximum concessional superannuation contributions (those contributions made as part of your employment) are $25000 for those under 50 and $50000 for those over 50. The $50000 contribution cap for those over 50 will only be available until 2012. These low contribution limits make it necessary to consider maximising your contributions from a younger age. If you are on the top marginal tax rate, the opportunity saving associated with superannuation is 46.5% - 15% or 31.5%. That means every dollar of superannuation up to your concessional limit provides a tax saving of 31.5 cents in every dollar.

High income salary earners can beat the concessional limit by making excess superannuation contributions. This is possible where the fund has negative gearing losses or an anti-detriment balance. Effectively, this can reduce marginal tax rates from 46.5% to 31.5%.

Given that Self Managed Superannuation Funds can now borrow using Instalment Warrant Borrowing & Limited Recourse Borrowing arrangements, it is possible to invest in assets that cost more than the funds available in the superannuation fund bank account. Most lenders will require that the fund put up 33.33% of the cost of the asset as security. This means that if you have $200,000 saved in your fund you could potential secure debt of about $400,000 to buy an investment worth $600,000. As well as providing a negative gearing effect and allowing for the possibility of making excess contributions, this strategy ensures that the asset could be sold tax free in the future once the members have entered pension phase. Additionally, the same asset could deliver a tax free income stream once the members have entered pension phase.

Self Managed Superannuation Funds now also have the possibility of being involved in property development, either solo or via way of investing in a joint venture, company or unit trust structure.

As a result of tax ruling TR2010/1, passive investment companies have the ability to contribute superannuation on behalf of directors. In situations where the investments are held in a trust with a corporate trustee, technically the trust should facilitate the distribution to the corporate trustee & the corporate trustee should make the contribution on behalf of the director.

During the transition to retirement phase (currently 55 – 60), depending on what the marginal tax rate for the member of the fund is, it is worth considering using a recontribution strategy. This entails taking a pension and maximising concessional contributions up to the age based limit.

Follow article 'Pension Planning Strategies for Optimising Inter Generational Wealth Transfer' for more information.

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.

Why a Self Managed Superannuation fund is so vital

Using a Self Managed Superannuation Fund is a great way to manage your own wealth and reduce your tax burden. There are however, significant complexities involved that, if not planned for, can have detrimental outcomes both in relation to tax and wealth transfer.

Over two days of intensive superannuation seminars and much reading I’ve been able to refine my understanding of some areas within superannuation law that are well worth considering for those of you building your wealth in a Self Managed Superannuation Fund and for those of you that are at that phase in your life where inter generational wealth transfer is starting to become a consideration.

Important Areas -

• Tax Minimisation during the Accumulation Phase

• Maximising Concessional Contributions

• Instalment Warrant Borrowing & Limited Recourse Borrowing arrangements

• Using Excess Contributions to Minimise Taxable Income

• Using Self Managed Superannuation Funds for Property Development

• Preparing your Fund for Optimising Intergenerational Wealth Transfer

• Claiming insurance payments in a tax effective manner

Please refer to our follow on blogs for a summary of all the important areas.

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.

So you've got your money into your fund & now you want to get it out. Taking money out of superannuation is fraught with as much potential for trouble as getting money in.

A superannuation benefit can either be a superannuation member benefit or a superannuation death benefit. The benefits can take the form of a lump sum or an income stream.

There is a concept of preservation age that will be relevant for people with dates of birth before after July 1960. Effectively, this concept allows the government to "age creep" the earliest date of being able to access certain transition to retirement benefits. Currently the age where transition to retirement can start is 55.

For recipient's aged 60 & above, all superannuation benefits received are tax-free. Individuals aged over 60 do not need to include these benefits in their income tax returns.

In unusual cases, a person over 60 may still be taxed on any element untaxed in the fund. (Payments from certain untaxed government superannuation funds.)

There is a proportioning rule that means that the payment of the lump sum or income stream to the member must be composed of tax free & taxable dollars in proportion to the balance of the members account. As an example, if the member's account was composed of $100 from employment contributions (taxed) & $100 from member non-concessional contributions (tax free), then a lump sum of $50 would be composed of $25 taxed & $25 untaxed.

Taking a Lump Sum

Taking a lump sum can be a great way for people aged between preservation age (currently 55 - 60) to access cash up to $150,000 completely tax free from their superannuation fund. The caveat is that the member must be completely retired.

For recipients aged between preservation age (currently 55 - 60) any tax-free component of a superannuation lump sum or income stream is non-assessable non-exempt income. The tax-free component comprises the crystallised segment & the contributions segment. This is normally made up of non-concessional contributions.

Any taxable component of a superannuation lump sum is included in the taxpayer's assessable income. The taxpayer is entitled to a tax offset to ensure that the tax rate is 0% on the taxable component that does not exceed his or her low rate cap amount of $150,000 for the 2009/10 year.

In order to draw a lump sum, the taxpayer in the 55 - 60 year age group must be retired.

Taking an Income Stream

The taxable component of a superannuation income stream received by a person under 60 must be included in their assessable income. A taxpayer above his/her preservation age but below 60 is entitled to a 15% tax offset in relation to the taxable component of the income stream. The tax-free component (i.e. monies that went into the fund in a non concessional fashion)

For those people in their transition to retirement phase (55 - 60 currently), the 15% tax offset can provide a valuable tax planning opportunity. The trick is to salary sacrifice while drawing an income stream such that marginal tax rates are kept at a maximum of 15%.

In this transition to retirement phase the maximum amounts that can be drawn is 10% of the member balance.

Once a person turns 60, any income stream payments are tax-free.

Minimum Income Stream Payments for Members over 60

Account based pensions and annuities must meet the minimum payment rules set down in Sch 7 of the SIS Regs.

For 2009/10, the minimum annual drawdowns must be:

0 - 64    2%

65 - 74  2.5%

75 - 79  3%

80 - 84  3.5%

85 - 89  4.5%

90 - 94  5.5%

95+       7%

Superannuation is a tax effective vehicle for saving into & retiring on so it pays to be aware of some of the main ways to get money into your superannuation fund. If you put too much into your Superannuation fund you could end up losing by having to pay excess contributions tax so please be careful & seek advice before making contributions.

Concessional Contributions

These are contributions that an employer makes on behalf of an employee or a self-employed person makes on behalf of himself or herself. Concessional contributions are tax deductible to the person or entity making the contributions and incur tax at a rate of 15% in the super fund.

Aged under 50 $25,000

Aged over 50 $50,000

Aged 65 to 74 $50,000 but must be gainfully employed for at least 40 hours in 30 consecutive days.

Non concessional contributions, either cash or in kind

These are contributions that you make from after tax dollars. For instance you may have money sitting in a personal term deposit that you want to shift over to your superannuation fund. The reasons you may want to shift your after tax dollars to superannuation are twofold. Firstly, tax on the earnings generated by your investment dollars inside superannuation is generally taxed at a low 15%. Secondly, when you arrive at retirement, monies inside your superannuation fund can continue to compound in value and generate interest, dividends, rent or other income totally tax-free. Bear in mind though, that once you?ve reached retirement age the tax rates and tax breaks for retirees are quite favourable outside of superannuation too.

Maximum Non Concessional Contributions ?

$150,000 per annum for those aged under 65, or if over 65 must be gainfully employed for at least 40 hours in 30 consecutive days.

$450,000 as a three-year bring forward for those aged under 65

Small Business Asset Proceeds

Contributions arising from the disposal of small business assets that qualify for the CGT small business 15 year or retirement exemption up to a lifetime indexed CGT cap amount. The cap is $1,100,000 for 2009-10. The $1,100,000 can include capital gains of $500,000 that may have arisen from the disposal of small business assets under the retirement exemption.

The contributions associated with small business assets are in addition to the annual caps on non-concessional contributions.

Government Co Contributions $1 for $ up to $1000

Put in $1,000 of your own money into your superannuation fund & the government will put in $1,000.

Neither your $1,000 nor the government?s contribution of $1000 will be taxed on the way into the superannuation fund.

The $1,000 cannot form a deduction against your personal or business income.

Primary considerations to pay attention to include,

• Must have minimum 10% personal income attributable to carrying on a business or from employment as a percentage of total income
• Income does not exceed $61,920
• Under 71 years of age
• If aged 65 ? 70, additional work rules of 40hours of gainful employment in a period of not more than 30 consecutive days
• Lodge an income tax return
• Not have a Visa

Make an eligible personal superannuation contribution (best to make the contribution from your personal bank account)

Spouse Contributions & Spouse Contributions tax Offset

A tax offset of $540 is available to a taxpayer who contributes up to $3000 to a superannuation fund that will benefit their spouse.

The tax offset effectively reduces the taxpayers tax liability.

A taxpayer is entitled to a spouse contributions tax offset only if ?

• The contribution is made on behalf of someone who is the taxpayer?s spouse (i.e. someone living with the taxpayer on a genuine domestic basis as a life partner)
• Both taxpayer & spouse are Australian residents
• The total of the spouse?s assessable income, reportable fringe benefits & reportable employer superannuation contributions for the income year is less than $13,800
• The full $540 offset is available for spouse incomes below $10,800. Between levels of $10,800 ? 13,799, the offset is available at 18% of the maximum rebatable contribution

Splitting Contributions between Spouses

This option may prove valuable where a younger spouse is making significant contributions while the older spouse is not. As the older spouse reaches retirement sooner, superannuation funds become available for pension payments sooner.

A fund member needs to apply to the trustee of the fund to rollover, transfer or allot for the benefit of the spouse, an amount of the members contribution made in the previous financial year that ended before the application.

The maximum split able amount is 85% of the member?s concessional contribution so long as the spouse?s contribution cap is not breached.