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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

Posted on 25 November '20, under Super. No Comments.

Tax contributions on your super

How much tax you pay on your super contributions and withdrawals depends on a variety of factors. The process takes into account your total super amount, your age, and the type of contribution or withdrawal you make.

How are super contributions taxed?

The money that you contribute to your super account through your employer is taxed at 15%, and this is the same with salary sacrificed contributions. But there are exceptions to this:

Any after-tax super contributions (non-concessional contributions) are not taxed further.

How are super withdrawals taxed?

How much tax you pay on withdrawals depends on whether you withdraw as a super income stream or a lump sum. Since this can be a convoluted process, it may be beneficial to approach an advisor and clarify any questions you may have before you withdraw money.

What about beneficiaries?

If someone dies, then their super money will go to their beneficiary. This is known as a super death benefit. As a beneficiary, the tax you pay on the death benefit is dependent upon:

Posted on 25 November '20, under Tax. No Comments.

Superfund categories and what they mean

There are four different categories of super funds. These have different primary features and are more applicable to certain people than they are to others.

Retail super funds

Anyone can join retail funds. They are mostly run by banks and investment companies:

Industry super funds

Anyone can join bigger industry funds, but smaller ones may only be open to people in certain industries i.e. health.

Public sector super funds

Only available for government employees

Corporate super funds

Arranged by employers for employees. Large companies may operate corporate funds under the board of trustees. Some corporate funds are operated by retail or industry funds, but availability is restricted to employees

Self-managed super funds

Private super fund you manage yourself. Many more nuances to this type of fund. Most prominent feature is the autonomy over investment.

Posted on 19 November '20, under Super. No Comments.

Small business CGT concessions

Businesses receive four different types of concessions on top of CGT exemptions and rollovers which are available to everyone. These allow businesses to disregard or defer some or all of the capital gains from an active asset which is used in the business.

The four additional concessions include:

Note that these concessions are only available upon disposal of an active asset and either of the following:

There are also other criteria and conditions that the business will need to meet but you can apply to as many concessions that are applicable to you. Importantly, you can only apply to these in a certain order so be wary of this.

Posted on 19 November '20, under Tax. No Comments.

What is an annuity?

An annuity provides guaranteed income for a number of years, or for the rest of your life. It is also known as a lifetime or fixed-term pension.

You can buy an annuity from a super fund or life insurance company. You are able to choose whether you want the payments to last for a fixed number of years, your life expectancy, or the rest of your life.

In order to buy an annuity through your super fund, you must be in the ‘preservation age’ which is between 55 and 60. Additionally. You are required to meet a condition of release e.g. permanently retiring.

You are also able to buy an annuity in joint names using savings. Through this method, you can split income for tax purposes. If either you or your partner dies, then the survivor has ownership and access to the funds. On the other hand, buying an annuity using a super lump sum can only be in the name of the owner.

When you buy the annuity, you decide the payment amount you will receive. This can increase each year by a fixed percentage or indexed with inflation. Further, you can also choose if you are paid monthly, quarterly, half-yearly or yearly. There are some conditions the ATO has about minimum annual payments if your annuity is bought with super money e.g. must pay a certain percentage of the balance based on your age.

You decide what happens with your annuity if you pass away. You can either nominate a reversionary beneficiary or choose a guaranteed period option. A reversionary beneficiary will receive your income payments for the rest of their life, usually at a reduced level. The guaranteed period option will allow your beneficiary to receive their payments as a lump sum or an income stream.

An annuity will impact your eligibility for the Age Pension as it is accounted for in the income and assets tests which are conducted. You should discuss exactly how the annuity will impact Age Pension entitlement with a Financial Information Service (FIS) officer.

Posted on 12 November '20, under Super. No Comments.

Claiming your tax deductions

There are different types of deductions which individuals can claim to reduce their taxable income.

Work-related expenses

In order to claim work-related tax deductions, the expenses must have to meet three criteria. Firstly, all the expenses have to be paid by the individual, without being reimbursed by the employer. Secondly, they must be directly related to earning your income. Finally, there must be a record of the expenses (i.e. a receipt).

There are various different expenses which can fall under this category.

Investment expenses

The cost of earning interest, dividends or other investment income can also be claimed. This can include:

Home office expenses

A portion of the costs associated with installing your home office can be deducted. The process is now much easier due to COVID-19. It allows people to claim 80 cents per hour for all running expenses. Additionally, people living in the same house can claim this individually, there is no need for a dedicated office.

Other deductions

There are also other deductions available. These include:

Posted on 12 November '20, under General News. No Comments.

Super scams: What to look out for

The market for super funds is extremely competitive.Scammers take advantage of this by promising unrealistic benefits to acquire personal or account details. They are able to use this information to steal your identity or transfer your super to an account they can access.

Scammers can approach you in various ways. You could receive a phone call, email or be contacted online.

This is what you should be weary of:

The best way to spot a scam is to know what the rules about your super fund are. Knowing when you can legally access your super will protect you from false promises. Additionally, the ASIC website lets you check if someone is licensed, if they are not licensed, more likely than not, they should not be trusted.

If you believe that you’re being targeted by a scam, then rather than simply ignoring approaches and not engaging, you should report the scam. You can do this by calling the ATO or completing the online complaint form on the ASIC website.

Posted on 5 November '20, under Super. No Comments.

How are investments taxed?

Investment income needs to be included when conducting tax returns. This includes any income acquired through interest, dividends, rent, managed funds distributions and capital gains. The income yielded from investments is taxed at a marginal tax rate.

Individuals are able to claim deductions for the cost of buying, managing and selling an investment. However, the Australian Tax Office (ATO) provides rules about what an or cannot be claimed as a tax deduction.

The MoneySmart website has a simple and easy-to-use tax calculator that may give an indication as to what the annual tax will be. However, it is recommended that if an individual has a diverse portfolio that yields income from multiple sources, then should consult an accountant or advisor that can lead them through the process as it can become quite complex.

In order to minimise taxation on investment income, individuals should consider tax-effective investments which provide concessional taxation. These include superannuation and insurance bonds.

Posted on 5 November '20, under Tax. No Comments.

PAYG instalments for business and investment income

Pay as you go (PAYG) instalments are payments you can make throughout the year to avoid accumulating a large tax bill to pay at the end of the year. Making these payments is a great way to budget for income tax and keep a healthy cash flow.

To qualify for PAYG instalments, you must earn over a threshold amount from your business or investment income (also known as instalment income).

The amount that you pay in PAYG instalments throughout the year will be offset against any owed tax for the entire year. But it is important to lodge your activity statements and pay all PAYG instalments before lodgment of tax returns if you want these to be included in your tax assessment.

There are two options for calculating and paying PAYG instalments:

Posted on 29 October '20, under Tax. No Comments.

First home super saver scheme

The first home super saver (FHSS) allows individuals to save up for their first home in their super fund. The money saved in the super fund is taxed concessionally and therefore, individuals are able to save faster.

Individuals can make voluntary concessional (before-tax) or voluntary non-concessional (after-tax) contributions into their super fund. They can then apply for those contributions to be released. This also releases any earnings associated with those contributions.

This scheme can only be used by a first home buyer if both of the following apply:

The eligibility criteria to participate in FHSS is as follows:

Eligibility is assessed on an individual basis; couples, siblings, or friends can access their FHSS contributions to purchase the same property.

There are many other considerations for FHSS which individuals should take into account if they plan to use the scheme.

Posted on 29 October '20, under Super. No Comments.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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