Superannuation Update

August 2013

Mark Gibson CACA SMSF Specialist

Registered Tax Agent

ASIC Registered SMSF Auditor

Director, Melmerby Pty Ltd AFSL 238 039

Authorised Representative ASIC No 291 756

Sage Advisers801 Glenferrie Road

Hawthorn VIC 3122

Ph: +61 3 9818 8810

www.sageadvisers.com.au

mg@sageadvisers.com.au

Overview

April 2013 Government announcements

Current system for superannuation

Transition to retirement strategy, plus case study

Superannuation Guarantee

Key points to remember

April 2013 Government Announcements Changes to tax treatment of earnings on superannuation assets

supporting income streams

From 1 July 2014 earnings above $100,000 will be taxed at same rate that applies to earnings in the accumulation phase (15%)

For assets purchased before 5 April 2013 the reform will only apply to capital gains that accrue after 1 July 2024

For assets purchased from 5 April 2013 to 30 June 2014 will have choice to apply the reform to entire capital gain or only that part that accrues after 1 July 2014

For assets purchased after 1 July 2014 the reform will apply to the entire capital gain

No legislation has been introduced prior to 2013 election (opposition has yet to decided whether to support change)

What is the current super system?

Last substantial overhaul of complex super system occurred in 2007 introducing:

Tax-free super for 60+ pension accounts

Reasonable Benefit Limits (RBLs) abolished

Compulsory cashing abolished so you can maintain super in accumulation phase indefinitely

Tax-free super if you’re 60 or over

Lump sums or pension payments are tax free from age 60

Benefit does not form part of assessable income from age 60

Good reason to consider super over other forms of investment structures

Limits on non-concessional (undeducted) contributions

There is a $150,000 annual limit on non-concessional (undeducted) contributions, but if you’re under 65, you can contribute up to $450,000, averaged over three years

Anything over the limits will be taxed at top marginal rate of 46.5 per cent

Limits on concessional (deductible) contributions

Concessional Contribution Cap from 1 July 2013

Under 59 $25,000

59+ $35,000

Limits

Excess concessional contributions taxed at marginal rates plus an interest charge

Individual has option to withdraw excess amount from super (net of 15% fund tax)

Super incentives for self-employed people

Personal concessional contributions by self-employed individuals will be fully tax deductible

Must satisfy maximum earnings test (10%)

Self-employed individuals may also be eligible for the Government co-contribution

Pension paymentsSimplified rules for pensions drawn from your super:

No maximum limit on your pension payment*

Lower minimum payment limits 2013/14:

• 4 per cent of balance if you’re aged between 55 and 64

• 5 per cent of balance if you’re aged between 65 and 74

• 6 per cent of balance if you’re aged between 75 and 79

• 7 per cent of balance if you’re aged between 80 and 84

* Special rules apply to non-commutable allocated pensions or NCAPs (max limit of 10%)

Transition to retirement strategy

Problem – how to boost your super as you transition to retirement without lowering your current income

Solution – a strategy based around accessing your super through a non-commutable allocated pension (NCAP)

Action steps

• Continue to work

• Boost your super with salary sacrifice payments

• Maintain current income with an NCAP

Result – a super boost for your retirement

NCAPs in a nutshell

Non-commutable allocated pensions (NCAPs) can only be started once you reach preservation age

Purchased with superannuation money

No work test requirement

Minimum (age based) and maximum (10%) income limits apply

Lump sum withdrawals (commutations) generally not allowed

Usual to convert to allocated pension at age 65 or when retire

Preservation Age

If your date of birth is: Your preservation age is:

Before 1 July 1960 55

Between 1 July 1960 and 30 June 1961 56

Between 1 July 1961 and 30 June 1962 57

Between 1 July 1962 and 30 June 1963 58

Between 1 July 1963 and 30 June 1964 59

After 30 June 1964 60

Boost your super

Once you’ve reached your preservation age, continue to work at your present level

Purchase an NCAP with your superannuation money

Salary sacrifice into your super account

(employer must agree)

Maintain current income by drawing a pension from your NCAP

Tax advantages mean your income stays the same but your super balance receives a boost

Trevor’s story Trevor, 55, wants to retire at 65 and work full-time until then

He earns $60,000 per year - $48,153 after tax and Medicare levy

Trevor has $300,000 in super

Trevor rolls over all his super into an NCAP and chooses a annual pension payment of $15,780 in 1st year to maintain his net income

He salary sacrifices $19,600 (Year 1) into super and receives the same net income of $48,153 after tax and Medicare levy

The projections in this strategy are based on various assumptions, including but not limited to: pension payment = $15,780

in year 1; salary sacrifice = $19,450 in year 1; no change in take-home pay before/after strategy; no change in risk profile;

estimated investment return = 5.9% pa (super), all investment earnings figures are after tax and after fees; Super

Guarantee contributions, i.e. 9.25% of $60,000; ongoing administration fees are not included.

Trevor’s position without the strategy

Salary

package

Salary $60,000

Take Home

Income

$48,153

9.25% Super

Guarantee

Super account

balance

$300,000

An NCAP gives Trevor a super boost

Salary

package

Salary $60,550

Take Home

Income

$48,153

Salary sacrifice

$19,450 +9.25% SG

New super

NCAP $300,000

Pension of $15,780

Trevor’s estimated gain

By using this strategy Trevor will have built an extra amount of around $70,000 in super by age 65

The increase is due to tax treatment and is not a result of a change in investment strategy

By making additional salary sacrifice contributions Trevor could increase his super still further

There is flexibility to adjust payments to ensure Trevor’s income keeps up with CPI or salary increases

Trevor’s estimated gain

0

100000

200000

300000

400000

500000

600000

700000

55 56 57 58 59 60 61 62 63 64 65

Tota

l Acc

ou

nt

Bal

ance

$

Age

Current

TRIS

The projections in this

strategy are based on

various assumptions,

including but not limited

to: pension payment =

$15,780 in year 1; salary

sacrifice = $19,450 in

year 1; no change in

take-home pay

before/after strategy; no

change in risk profile;

estimated investment

return = 5.9% pa

(super); all investment

earnings figures are

after tax; no change in

Super Guarantee

contributions, i.e. 9.25%

of $60,000; ongoing

administration fees are

not included.

Superannuation Guarantee

Employer requirements as a % of ordinary time earnings:

• 9.00 per cent for 2012/13 financial year

• 9.25 per cent for 2013/14 financial year

• 9.50 per cent for 2014/15 financial year

• 10.00 per cent for 2015/16 financial year

• 10.50 per cent for 2016/17 financial year

• 11.00 per cent for 2017/18 financial year

• 11.50 per cent for 2018/19 financial year

• 12.00 per cent for 2019/20 and later years

• Minimum salary $450 per month; maximum salary $192,160 pa

Key points to remember

Lump sum withdrawals and income stream payments are tax free from age 60

Transition to retirement strategy using an NCAP should be considered by people over 55 and still working

Possible changes to tax treatment of pension income post 2013 election

You must seek personal advice

ContactMark Gibson CASMSF Specialist, Institute of Chartered Accountants in Australia

Registered Tax Agent

ASIC Registered SMSF Auditor

Director, Melmerby Pty Ltd AFSL 238 039

Authorised Representative ASIC No 291 756

Sage Advisers801 Glenferrie Road

Hawthorn VIC 3122

Ph: +61 3 9818 8810

www.sageadvisers.com.au

mg@sageadvisers.com.au

DisclaimerImportant information

This presentation has been prepared by Mark Gibson CA, authorised representative (ASIC No 291756) of Melmerby Pty Ltd ABN 18 105 504 701, AFS Licence No. 238039, to provide you with general information only. Mark Gibson is a registered tax agent, an ASIC registered SMSF Auditor and accredited CA SMSF Specialist with the ICAA. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. It is not intended that it be relied on by recipients for the purpose of making investment and/or business decisions. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. You should obtain a copy of any relevant Product Disclosure Statement (PDS) before making a decision to invest in any financial product. PDS copies can be obtained by contacting us. Every effort has been made to ensure that the presentation is accurate, however it is not intended to be a complete description of the matters described. Melmerby provides no warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as any liability under statute cannot be excluded, Melmerby, its employees and authorised representatives do not accept any liability for any error or omission or for any resulting loss or damage suffered by the recipient or any other person. This information is provided for persons in Australia only.