AYB250 W7 lecture content

What is superannuation?

A system of saving and investing money during your working life to provide an income in retirement. It usually involves mandatory contributions from employers and employees, aimed at ensuring financial security for individuals in their retirement years.

In Australia, what does the term 'pension' usually refer to

The means-tested government-provided age pension (not employment-related).

Why do governments have retirement income policies?

Because of an ageing population, longer life expectancy, fewer taxpayers, and greater lifestyle expectations.

Describe the 3-pillar retirement income policy.

1) Mandatory contributions (superannuation guarantee and compulsory SG); 2) Voluntary contributions with tax incentives; 3) Government-provided age pension (means-tested).

What is the core purpose of superannuation?

To provide retirement benefits and, in some cases, death benefits.

What are ancillary purposes of superannuation besides retirement?

Benefits for illness/disablement or other circumstances that prevent working.

What is SIS Act short for and what does it govern?

Superannuation Industry (Supervision) Act 1993. Trustees in this act are responsible for the fund and must make decisions in the best interest of the fund members (beneficiaries).

Name the regulatory bodies involved with superannuation in Australia.

APRA (prudential supervision of super funds), ASIC (market conduct + disclosure and financial services licensing), ATO (taxation/audits of super funds), AFCA (deals with complaints against decisions of trustees).

List the types of superannuation funds.

Corporate, Industry, Public sector, Retail, SMSFs (Self Managed Superannuation Funds), SAFs (Small APRA Funds).

What is an accumulation fund in superannuation?

A defined contribution scheme where the balance is (the sum of) contributions plus investment earnings (or less investment losses), with risk borne by the member.

What is a defined benefit scheme?

where the balance is determined by a formula contained in the trust deed. investment risk is borne by employer-sponsor.

What are concessional contributions?

Contributions for which a tax deduction has been claimed; capped at $30,000 per year. Examples include SG, salary-sacrificed contributions, and personal deductible contributions.

What is a non-concessional contribution?

A contribution for which a tax deduction has not been claimed - made from after tax money; capped at $120,000 per year (on a rolling 3-year basis).

What is a Government super co-contribution?

A government payment to help low/middle-income earners boost their super. If you make a non-concessional contribution to super, the Government can match it up to 50% (the maximum co-contribution available is $500).

What is the maximum co-contribution when earning very low income (Government super co-contribution)?

A full co-contribution is available if income is below about $47,488; partial if income is below $62,488.

What is the spouse contribution tax offset?

Where the government provides a tax offset for an individual who makes a non-concessional contribution into the superannuation account of a low-income-earning spouse. The offset is up to 18% of the non-concessional contribution.

15-year asset expemption (Small business Capital Gains Tax concessions):

Allows the entire capital gain from the sale of business assets owned for 15 years to be exempt from CGT. Those elegible must be 55+ years old or permanently incapacitated.

What is the Downsizer contribution rule?

Over 55 (in 2023, age 60 replaced 55) can contribute up to $300,000 from selling a home; per person or per couple; exempt from contribution caps if criteria met.

What is the First Home Super Saver Scheme (FHSSS) for?

A government scheme to help first-home buyers save via voluntary concessional or non-concessional contributions within super, for a first home deposit.

What is an in-specie contribution?

Contributions of non-cash assets (e.g., securities, property) at market value; must elect concessional or non-concessional treatment; concessional contributions taxed at 15%.

What is the work test for contributions?

A requirement for individuals aged 67 and older to meet minimum work hours to make super contributions; typically, at least 40 hours within a 30-day period.

How does choice of fund and stapling work?

Most employees can choose which super fund receives their compulsory contributions; if no choice is made, the employer must request the employee’s stapled fund details from the ATO, and use that fund for contributions.

What must super funds establish regarding investments?

An investment objective and strategy for each investment option. This investment objective is the benchmark for fund performance. Investment strategies must consider risk and return, diversification, and liquidity.

Name common investment option categories offered by funds.

Capital stable, Cash, Conservative, Balanced, Growth, High growth, Socially responsible/sustainable, Individual asset classes, DIY options, MySuper.

What are key investment restrictions for super funds?

Sole purpose test, in-house assets rule, borrowings (restrictions), (no) loans or financial assistance to members, transactions on an arm’s length basis.

What are conditions of release from superannuation?

Reaches age 65, reaches preservation age (60) and retires, reaches preservation age and commences a transition to retirement income stream, death, terminal illness, permanent incapacity, compassionate grounds

Tax treatment of superannuation benefits after age 60?

Benefits withdrawn after 60 are tax-free; pension phase earnings are tax-free; capital gains in pension phase are tax-free.

What taxes apply if you access super before age 60?

20% tax plus Medicare levy (unless certain circumstances i.e. permanent incapacity).

How are superannuation funds taxed as entities?

Superannuation funds are taxed at a maximum rate of 15% on earnings, which is lower than the standard corporate tax rate. In the pension phase, earnings and capital gains are generally tax-free.

How is assessable income for a super fund calculated?

Assessable income for a superannuation fund is calculated by summing all taxable income, including contributions and investment earnings, minus any allowable deductions.

What deductions can super funds claim?

Expenses necessarily incurred by the fund when earning assessable income are allowable deductions. Examples include management and administration fees, custodian fees, brokerage costs, actuarial costs, insurance premiums held within the fund

What is the impact of franked dividends on super funds?

Franked dividends with franking credits are advantageous; the franking credit can reduce or offset tax payable for the fund.

How do relationship breakdowns affect superannuation?

Relationship breakdowns can lead to changes in superannuation entitlements, as assets may be split or considered in property settlements. This can affect the distribution of a member's superannuation balance.

What defines a Self-Managed Superannuation Fund (SMSF)?

A fund with up to six members (now), all trustees or directors of a corporate trustee; governed by a trust deed; members are liable for fund operations.

What are the advantages of setting up an SMSF?

Control over investments, flexibility to hold diverse assets (incl. property), estate planning and tailored strategies; not ideal for balances under about $200,000.

Small business retirement exemption (Small business Capital Gains Tax concessions):

Allows the first $500,000 of a capital gain arising from the same of a business’ active assets to be exempt from CGT. If under 55, the capital gain (CG) must be contributed to super. if 55+, they can keep the CG or contribute it to super. Lifetime limit of $500,000.