Sage Advisers Superannuation Update August 2013

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Sage Advisers Superannuation Update August 2013 …

Sage Advisers Superannuation Update August 2013
Mark Gibson CA SMSF Specialist
801 Glenferrie Road Hawthorn VIC 3122
www.sageadvisers.com.au

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  • 1. Superannuation Update August 2013 Mark Gibson CA CA SMSF Specialist Registered Tax Agent ASIC Registered SMSF Auditor Director, Melmerby Pty Ltd AFSL 238 039 Authorised Representative ASIC No 291 756 Sage Advisers 801 Glenferrie Road Hawthorn VIC 3122 Ph: +61 3 9818 8810 www.sageadvisers.com.au mg@sageadvisers.com.au
  • 2. Overview  April 2013 Government announcements  Current system for superannuation  Transition to retirement strategy, plus case study  Superannuation Guarantee  Key points to remember
  • 3. 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)
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. 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)
  • 8. 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
  • 9. Pension payments Simplified 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%)
  • 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
  • 11. 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
  • 12. 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
  • 13. 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
  • 14. 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.
  • 15. 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
  • 16. 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
  • 17. Trevor’s estimated gain By using this strategy Trevor will have built an extra amount of around $70,000 in super by age 65  The increase is due to tax treatment and is not a result of a change in investment strategy  By making additional salary sacrifice contributions Trevor could increase his super still further  There is flexibility to adjust payments to ensure Trevor’s income keeps up with CPI or salary increases
  • 18. Trevor’s estimated gain 0 100000 200000 300000 400000 500000 600000 700000 55 56 57 58 59 60 61 62 63 64 65 TotalAccountBalance$ 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.
  • 19. 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
  • 20. 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
  • 21. Contact Mark Gibson CA SMSF 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 Advisers 801 Glenferrie Road Hawthorn VIC 3122 Ph: +61 3 9818 8810 www.sageadvisers.com.au mg@sageadvisers.com.au
  • 22. Disclaimer Important 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.