Fast and Comprehensive Guide to Superannuation and Tax

One of the most commonly asked questions we receive from our clients are those that involve superannuation and tax. Questions like – “how is super taxed?” or “how much tax is there during payout?”

We know just how complicated taxes can be. That’s why we made this guide for you to read and learn from. In this post, we’ve simplified all the information you need to know about superannuation and tax in a manner that is easy to understand.

So read on...

Superannuation tax for Starters

Know about how your super is getting taxed as well as what is going to happen when you retire before reaching 60 years old, the taxless privileges on or past 60 years old, the way in which the income on your superannuation savings are going to be taxed, how your superannuation donations are applied with, and the tax consequences of giving your superannuation privileges to friends or family upon your death.

It is quite easy to learn a few of the more familiar tax-efficient superannuation techniques, as well as the manner in which the superannuation tax policies influence Self Managed Superannuation Funds.

The treatment of tax of super can be troubling but to make it easy for you, your super privilege can be applied with tax at three phases:

1. While having superannuation donations
2. While a superannuation amount produces earnings
3. While getting superannuation privileges

1. Tax Donations: while making tax-deductible donations

• Donations tax of 15% can be paid on concessional (tax-deductible) donations, that has personal concessional donations, Super Guarantee donations and income-sacrificed donations.
• If you are a worker, whoever hired gets a tax subtraction for the tax-deductible donations (namely, for Super Guarantee donations and income-sacrificed donations, as well as extra employer donations). Income sacrificed donations also decrease an employee’s verifiable earnings for the purposes of tax.
• If you are an independent worker, or technically not working, then you could claim a tax reduction for tax-deductible donations when submitting your salary tax return.

Additional donations tax for high-salary workers: Starting July 1, 2012, any person who earns above $300,000 is penalized with extra donations tax of 15%, having the entire tax take on tax-deductible superannuation donations of high-salary workers to 30%.

This extra 15% tax is termed as Division 293 tax. Starting July 1, 2017, the tax-deductible (concessional) donations of Australians who earn above $250,000 (instead of just above $300,000) are also going to be hit by the 15% Division 293 tax.

Low Income Superannuation Donation

• From the beginning of the 2012/2013 year, if you are earning below $37,000 every year, and you, or whoever hired you makes tax deductible or concessional (before-tax) super donations on your accord, then you could expect a refund (up to $500) of the donations tax subtracted from your superannuation account, directly paid to your super account by the federal government.
• This tax-refund to your superannuation account is popularly recognized as the Low Income Superannuation Contribution. Starting July 1, 2017, the refund of the tax is going to be redefined the Low Income Superannuation Tax Offset.

For more details about the LISC see Australian Super Finder Knowledge Base or sign up for a free consultation for good advice.

Extra donations tax

• If you produce super donations which go beyond your tax-deductible donations limit, then the superannuation account could be affected by extra donations tax, or at the very minimum affected with an interest penalty and the trouble of getting your extra donations from your superannuation fund.
• Also, if you make after-tax or non-concessional donations, and you go beyond the non-concessional limits (or, if below the age of 65, the 3-year bring-forward limit) then you are also going to have to contend with the extra contributions donations.

For added details see Australian Super Finder Knowledge Base or consult with us for a more in-depth advice.

Important Note: Super is only present because of the way superannuation savings are being applied with tax. Super savings get tax benefits to motivate Australians to select superannuation as a retirement savings choice. Even so, super will still be applied with taxed (for most Australians), but at a lesser rate of tax than non-super earnings and savings.

2. Salary tax: when superannuation fund generates earnings

• In the accumulation stage, income tax of 15% is going to be paid on superannuation fund income. Bear in mind that capital profits on the selling of a superannuation fund asset which has been kept for above 12 months, gets a 33% discount on tax payment, which means that capital profits are better taxed at 10%, if the asset which was sold by the superannuation fund has been kept for over 12 months.
• Accumulation stage is the amount of time that you have a superannuation account, while you are not getting a pension from your superannuation account. Usually, Australians have superannuation accounts during accumulation stage as they are earning, although from July 1, 2017, TRIP or transition-to-retirement pensions are also going to be treated as also in accumulation stage.
• No tax will be paid on income from assets with finance on a stream of income (pension); that is, no tax is going to be paid on a superannuation account’s income when a superannuation account is in income stream stage, or from July 1, 2017, what is going to be termed as stage of retirement.

3. Privilege payments charge: upon getting superannuation privileges

• Tax is going to be paid when you acquire a superannuation privilege before 60 years old, or you get a privilege from an untaxed income stream (especially older public sector funds).
• The tax-free portion of a privilege is often free of tax, despite of age and despite of whether the privilege is from a taxed stream of income (most superannuation funds) or coming from a source that is not taxed (a few older public sector funds).
• If you are going to die, and your superannuation privileges are left to someone who is not classified as a ‘dependent’ based on the laws on taxes, then tax is going to be paid on the taxable portion of the death privilege.

Capital profits: Minimizing tax through superannuation donations

Minimizing the income amount of the tax payable, which includes income tax payable on net capital profits, by making before tax or (concessional or income sacrificed) super donations stays as a popular technique.

Important Note: Remember that tax-deductible donations are going to be under 15 per cent tax when getting into the fund (and 30% donations tax if the person has flexible taxable earnings of above $300,000, and from July 1, 2017, if flexible for taxable earnings is over $250,000).

For the 2016/2017 year, the yearly cap for tax-deductible donations is $35,000 for anybody who is 50 (that is 49 years or over on 30 June 2016). The pre-tax donations limit is $30,000 (for the 2016/2017 year) for anybody below 50 years old (which is 48 years or below on June 30, 2016).

From July 1, 2017, one yearly tax-deductible limit of $25,000 is applicable to everybody.

A lone working or non-working person could only get subtractions for super donations against verifiable earnings, like capital gains, salary and investment income. For workers, joining an income sacrifice contract (earning pre-tax donations to a superannuation fund pursuant to a contract with a worker) is a different famous technique used to diminish a person’s taxable earnings.

Super Guarantee donations are considered as tax-deductible donations, and are counted against the yearly tax-deductible donations limit.

Who Could Create Concessional Superannuation Donations?

In general terms, you can create two kinds of superannuation donations: post-tax or non-concessional donations and tax-payable (concessional) donations. Tax-payable or concessional donations could also have concessional superannuation donations, where a person gets a reduction.

For the 2016/2017 year, that is, starting July 1, 2016 to June 30, 2017, a qualified person can make before-tax donations of up to $30,000 every year if you are 48 years old or below on June 30, 2016, and a maximum of $35,000 for the year if you are 49 years old or above on June 30, 2016.

In general terms, you can have two kinds of superannuation donations: non-concessional (post-tax) donations and tax-deductible (before-tax) donations. Tax-deductible donations can also have concession superannuation donations, where a person gets a deduction.

For the year 2016/2017, that is, starting July 1, 2016 to June 30, 2017, a qualified person can have tax-deductible donations of a maximum of $30,000 every year if you are 48 years old or below on June 30, 2016, and up to a maximum of $35,000 for the year if you are 49 years old or above on June 30, 2016.

In order for the general policies to be relevant to tax-deductible donations see Australian Super Finder article Superannuation concessional (tax-deductible) donations: 2016/2017 survival techniques.

• For the year 2015/2016, meaning, starting July 1, 2015 to June 30, 2016, a qualified person can make tax-deductible donations of a maximum of $30,000 every year if you are aged 48 years old or below on June 30, 2015, and a maximum of up to $35,000 during the year if you are aged 49 years old or above on June 30, 2015.
• From July 1, 2017, the Coalition government has reduced the tax-deductible donations limit to $25,000 for Australians of all age groups. The plan to reduce the tax-deductible limit does not influence the limits for the financial years of 2015/2016 or 2016/2017.

Even if this article does not contend with non-concessional donations, it is still a must to note significant changes, and deductions, to the non tax-deductible (after-tax) donations limit.

Am I qualified to have concessional superannuation donations?

• If you’re self-working (or adequately self-working) or you are not working, you can request for a tax reduction for your superannuation donations, which simply means these superannuation donations are considered as tax-deductible donations.
• A person below 18 years old, however, could only request for a tax reduction for superannuation donations when his or her earnings comes from profitable employment, like taking care of a business.
• If you are a worker, for almost all situations you could not request a tax reduction for creating a superannuation donation, even though you could get an analogous tax privilege by having income sacrifice donations.
• For the year 2015/2016 and year 2016/2017, if you are a worker and you can fulfil the 10% salary test policy, then you could be able to request a tax reduction for a superannuation donation, even as a worker.

The rules for requesting tax reductions on superannuation donations can be complicated based on the kind of job that you are into, and whether or not you stick with other work.

We at Australian Super Finder have tried to make the tax-deductibility rules simpler into classifications of persons, but I advise that you also make sure of your capacity to get a tax reduction with the ATO.

This is how it goes: You could request a tax reduction for superannuation donations should you be less than one of the corresponding classifications:

• Self-working. You’re self-working and you are not employed under an arrangement primarily for your jobs.
• Not working. You are not working; for example, you are a full-time investor or looking after offspring.
• 10% salary test policy. You get a portion of your salary as a worker but below 10% per cent of your verifiable salary plus income sacrifice donations plus valid fringe privileges can be attributed to working as an employee. The 10% test seems fairly complex but if you are working, and also working on your own, then you could work out methodical work if you are qualified to request a tax reduction for your superannuation donations.

Remember that working salary comprises of valid employer superannuation donations, like income sacrifice donations, but does not comprise of Super Guarantee Verifiable salary is total salary prior to the application of deductions, and comprises of income and salary, dividends, outside income source, business salary (comprising of individual services earnings), rent, net capital profits, interest distributions coming from trusts and partnerships, and a few other items.

Valid employer superannuation donations (like income sacrifice donations) are also included in the verifiable earnings when doing work out whether a person fulfils the 10% test – the employment earnings divided by overall income has to be below 10% for a person to request for a tax reduction for his or her own superannuation donations.

Super Past Life: Dear Father, Tax for All Of It

• If you try to pass on your superannuation to your adult children in the time of your death, your super death privilege could be affected with privileges tax, although you might have acquired that privilege free of tax (if you are 60 years old or above) while still alive.
• The cause for this lack of consistency is that super death advantages given to persons who are technically called ‘non-dependents based on the laws of taxes’, like financially stable adult children, could be under particularly unique ‘death tax’.
• If your death privileges are given to a person technically called a ‘dependent based on the laws of taxes’, though, no tax is going to be paid on the privilege. Technically this kind of dependent is termed as a “death privileges dependent” (according to the Salary Tax Assessment Act of 1997).
• Death privileges dependents (meaning, dependents according to the laws of taxes) comprise of your partner, children below 18 years old, any person who is depending financially on you (which could comprise of adult children), or any person who has a mutual dependence with you (it can also comprise of adult children).
• A child who is disabled for the long term is treated as a death privileges dependent even if he/she is above 18 years old.

Sometimes, the policies could confuse you since a person who is independent financially, an adult child is technically a dependent based on the laws of superannuation, which means he or she could acquire the privilege from the superannuation fund, but is technically called a ‘non-dependent based on the laws of tax’ (meaning, not a death privileges dependent) which means that the taxable portion of the superannuation privilege granted to your son or your daughter is going to be affected by tax.

In simple language, this means that: if any of your children 18 years old or above cannot present evidence that they were financially dependent on you, or present evidence that they have a relationship of interdependence with you, then they would be considered non-dependents based on the laws of tax, even if they are considered dependents based on the laws of superannuation.

Your financially independent adult children could still get a death privilege from your superannuation fund or property, but the privilege is affected by tax.

Important: The superannuation rules (SIS Act, section 10A) define a ‘relationship of interdependency’ to be two people (whether or not connected by kinship), if they have a close individual relationship, and they are staying together, and every single one of them supports the other with financial aid, and every single one or each of them gives the other with domestic aid and personal support.

A relationship of interdependency (whether or not connected by kinship) can mean 2 people who have a really close individual relationship but because either or both of them suffer from a psychiatric, physical or intellectual disability, they don’t stay together, and they don’t give financial aid, and they don’t give the other with domestic aid and personal support.

Note: In general, your dependents covered by the super policies, or your legitimate personal representative, are the only ones who can get a death privilege straight from your super fund.

A person who is not your dependent based on the superannuation policies, could acquire your death privilege but, in most cases, that could only happen if the death privilege is first granted to your property. If you do not have any dependents, your death privilege is granted to your property.

What Are The Tax Consequences For A ‘Non-Dependent Based On The Laws Of Taxes’?

A super death privilege could comprise of a:

1. Free of tax portion. This portion is constantly free of tax, even if granted to a ‘non-dependant based on the laws of taxes’. 2. Taxable portion. This portion is affected by tax when given to a ‘non-dependent based on the laws of taxes’. The taxable portion could comprise of:

• A portion affected by tax in the fund. A portion not taxed in the fund: Some permanent public servant is going to have a non-taxed taxable portion. The insured portion of a super death privilege could also fall under the untaxed classification if the superannuation fund has claimed tax reductions for the insurance benefits. (Insurance privilege to a death advantage dependent is tax free.)
• When your total amount death privilege is granted to somebody except your death privileges dependent, meaning, the privilege is given to a ‘non-dependent covered by the laws of taxation’, the taxable portion of the total sum amount is affected by tax at 15 per cent (plus 2% Medicare levy) if paid from a superannuation fund. (If a death privilege is granted from specific public sector funds, then a higher percentage of tax could be payable.)

For example: if the taxable portion of your superannuation privilege is around $500,000, your financially stable adult child acquires $415,000 of this value and the tax office acquires 17 per cent of the privilege —$85,000 — during the time of your death.

• Where the superannuation death privileges cover an insurance payout and the insurance payout can be applied with tax at 32 per cent (30% privilege payments tax with additional 2% Medicare fees).

Important: If your death privilege is granted to your property, and then granted to your death privilege dependents or ‘non-dependents covered by the laws of taxation’, your privilege is given the treatment the same way as if the privilege were granted straight to these persons. No Medicare fees, though, is going to be paid on a death privilege granted to your property.

The tax you pay on donations into your superannuation relies on the amount you donate and when you donate it.

Your TFN – the answer to less tax payments

If you have not granted us your (TFN) Tax File Number, you are going to pay additional tax – up to 49%* on your pre-tax as well as your employer’s Super Guarantee donations.

Superannuation funds cannot take in any post-tax donations from you if you have not granted your Tax File Number.

Tax File Number: The Easiest Way To Get It

There a couple of options: You could apply on your own (Do It Yourself) or you might acquire aid and utilize a service like Australian Super Finder who is going to set up your Tax File Number for you.

• Get Help
• Do It Yourself

Every option has a given disadvantage as well as advantage:

Making use of service and having some support:

• Advantage: It’s much simpler than doing it alone.
• Disadvantage: It is more costly.

Do It Yourself: Applying for your own Tax File Number:

• Advantage: Doing it alone is less expensive.
• Disadvantage: Doing it alone is going to mean you will have to do more work.

Do It Yourself - Submit your own Tax File Number for the working holiday

• You may also submit an application for a Tax File Number via the ATO or Australian Tax Office. It might typically take around 10-28 days for it to be released. Submissions could be done for your Tax File Number in Australia by means of the Australian Tax Office either on the internet or personally.
• The central challenge makers of working holiday grapple with while they apply straight via the Australian Tax Office is that you are required a postal address in Australia (the address you are required for must be secure because they will be sending your Tax File Number - that has to remain secure).
• If your address is in Australia and you are going to be personally there to get your information within 28 days then “no worries dude”, just go straight ahead and then apply. You should also have to give info like your travel document number or your passport, your contact information for yourself or for your chosen contact person and of courses your name.

For Backpackers Showing My Tax File Number to My Employer

If you’re a backpacker, you need 28 days so that you can give this information to whoever hired you, then after this they have to deduct tax in your usual pay at a percentage of 46.5%. It is your job to provide your Tax File Number to whoever hired you.

Therefore it is typically going to take around two weeks to acquire your Tax File Number as soon as you have made an application for it, it is really recommended to handle it as soon as possible.

Withdrawal Tax

Withdrawals from Australian Super are free of tax if you are 60 years old or above. Rates of taxes on total-sum withdrawals for individuals below 60 are shown below:

Free of Tax
• No tax payable

Charged With Tax

• If you are below the age of preservation, the tax is 22%*.
• If you are between your age of preservation and 59 years of age, the first $195,000 is free of tax and the balance is charged with tax up to 17%*.

Withdrawals tax is subtracted before receiving your payment.

Fees on investment income

Investment income in superannuation is charged with tax up to 15%. This tax, together with investment management charges, is subtracted prior to your investment income being applied on your account. Income is transferred to your account pert 12 months or if you move out of the Fund or transfer investment choices.

Final Thoughts

Discover how your super will be applied as well as what will happen during your retirement before you reach 60 years old, the taxless privileges during or after 60 years old, how your income on your superannuation money is taxed, how the superannuation donations are taxed, as well as the tax consequences of transferring your superannuation privileges to your friends and family upon your death.

You could also get a few things from a few of the famous tax-effective superannuation techniques, as well as the way in which the superannuation tax policies influence self managed superannuation funds.

Getting Help - Arrange your Tax File Number with Australian Super Finder

Utilizing our service here at Australian Super Finder has two unique pros - we are going to send through email your Tax File Number to you. For a lot of makers of working holidays who would just be arriving or who have just reached and are located in a hostel as they search for a job - it could only be the true way of not getting taxes at 46.5% tax fees.

To make sure that you do not pay a lot of tax you can lodge your Tax File Number you can fill out your submission here.

You could also contact our office to have someone from our group to get in touch with you. Should you have some inquiries regarding TFNs call us here - 1300 252 167. We are going to be happy to make sure you receive as much cash as possibly needed!

Testimonials:

“Australian Super Finder provides different professional outcomes if necessary – for temporary residents looking to find their super money or backpackers looking for a super refund. My super investments and tax naturally requires the professional services in a collaborative like Australian Super Finder does. I am more confident of my Super Investments with their advice.” – Tom Rhode

Disclaimer: All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.

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© AUSTRALIAN SUPER FINDER 2014-2017. All rights reserved. Authorised Representative Number : 462591 | Under Libertas Financial Planning Pty Ltd | ABN 27 160 419 134 AFSL No. 429718.
All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.