Archive for 'super'
Your Super Might Provide You With Insurance Options – But Are They Better Than An Actual Provider’s?
Taking out insurance through a super fund can be a great option for some members, but it does also come with some pitfalls.
Super funds typically offer three types of life insurance for their members – life cover, total and permanent disability and income protection insurance.
Most super funds will provide their members with insurance options and an option to increase, decrease or cancel default insurance cover. Typically, most will automatically provide you with life cover and TBD insurance, and some will also automatically provide you with income protection insurance.
There are many benefits of taking out insurance through super, including the ability to purchase policies in bulk, not having to pay for premiums with your take-home income, and the convenience of having your policy managed for you.
Additionally, life insurance inside super is deductible to the fund at 15 per cent annually; whereas life insurance premiums held outside of super are not tax-deductible.
However, there are pitfalls of holding insurance through your super. Generally, there is a limit on the payout that can be received from an insurance policy purchased by a super fund.
For some self-managed super funds, there may not be a limit – depending on what your insurance company is willing to cover. In public funds, it is usually between $100,000 and $200,000. This amount may be more than enough for many people. If you have dependents and a mortgage, it may be an insufficient amount to look after your loved ones, should something happen to you.
Members of super should be aware that life insurance coverage inside super ends when you reach a certain age (usually 65 or 70), whereas policies outside of super may cover you for longer.
Another important note to make for new super account holders is that insurance may not be provided to you if you are aged 25 or under, or have a super account balance under $6,000. In that case, you can contact your fund to request insurance through your super directly, or are employed in a dangerous job where the fund chooses to give you automatic cover.
Anyone using a super fund to provide insurance should ensure that they have an appropriate death benefit nomination in place that specifies who their super will go to in the event of their death. Speaking with a specialist like us can assist you in ensuring that your super fund balance doesn’t become the next big superannuation court case.
There is a proverb that says that it is better to ask for forgiveness than to ask permission.
Generally speaking, the idea behind this saying is that if you ask for permission and you do not receive it, then the punishment will be a lot harsher than if you do the thing that you asked to do and get caught afterwards.
For example, if your children were to ask you if they could go to the local pool, and you deny them that request, the chances are that they would be in more trouble than if they simply circumvented you, and went anyway. It may also be said that you may never get caught doing the wrong thing, but asking for permission to do the act could have someone keeping watch over you.
The same cannot be said for Self Managed Superannuation Funds.
It is never a good idea to break the rules and then ask for forgiveness in that instance (or at least not intentionally). SMSF laws are complex. Breaking the rules could be thought of as being quite easy, but is not an excuse.
The Australian Taxation Office (ATO) makes each and every person appointed as a trustee sign a declaration that they are aware of the rules and enforce that that declaration must be witnessed.
Then, after signing a declaration that you are aware and know the rules, they also force you to appoint an independent auditor to thoroughly check everything you have done and to make sure that you have not breached any of the rules.
If they find out that you have breached the rules then that auditor must then report the breach to the Tax Office.
Once it has been reported, this breach must be addressed as quickly as possible. It is even better if you rectify the breach before the auditor reports the breach. Your attitude towards rectifying the breach has a lot of impact on the action that the Tax Office will take against you as a trustee.
Where you can show that this was an inadvertent breach and you fixed it immediately upon realising you made the breach then most likely you will not receive any type of punishment.
Conversely, where the breach was made knowingly and you show hesitancy in rectifying it you should expect to feel the full wrath of the regulator. The ATO does not take lightly to a person not administering their super to the letter of the law.
What Punishments Can The ATO Give You?
There are a number of sticks the ATO has to punish wayward SMSF trustees. The most common punishment used is a direction to do something. For example, you might have acquired an asset off a member that was against the rules. In this case, the ATO would direct you to sell that asset back to the members.
Further on the next level of punishment would be education directives. The ATO has the authority to force you to do some formal SMSF Trustee training. There are a number of providers of these training courses.
That is the extent of the punishments that do not incur monetary penalties. However, the next level of punishment is significant fines for each individual trustee or director of the corporate trustee. These fines can be up to $10,000 per person.
The biggest punishment that can occur is to classify the SMSF as “non-complying,” where the cost of this will be 47% of the accumulated taxable component of the whole fund.
Essentially, that’s half of your super taken from you.
That’s why we always recommend complying with the rules. When you are unsure of the rules, then you should seek further clarification from an expert (and keep off of the ATO’s naughty list while you’re at it).
Building up your super is one of the ways that you can finance your eventual retirement. But what will happen to your super if something were to happen to you prior to that?
Much like how a will dictates what will happen to your physical assets, death benefit nominations ensure that superannuation benefits are properly dealt with in the event that a member dies. Generally, this means that the super provider pays the remaining super to their nominated beneficiary (if the rules of the provider allow you to nominate a beneficiary). This nomination may be non-binding or binding.
In the event that a binding nomination is allowed, you can nominate one or more dependents, or your legal personal representative to receive your super. In the event that the deceased does not make a nomination, the trustee of the provider may be able to:
- Use their discretion to decide which dependant or dependants the death benefit is paid to.
- Make a payment to the deceased’s executor of the deceased estate for distribution according to the instructions in the deceased’s will.
In the event that the nomination made by the deceased is non-binding, the trustee of the provider may:
- Use their discretion to pay in accordance with the non-binding nomination.
- Use their discretion to decide which dependant or dependants the death benefit is paid to.
- Make a payment to the deceased’s legal personal representative (executor of the estate) for distribution according to the instructions in the deceased’s will.
Superannuation death benefits do not automatically form part of the deceased’s estate and are generally not covered by the person’s will. Preparing a death benefit nomination should be done in conjunction with the member’s will so that all financial aspects of the estate are dealt with consistently.
How Often Should a Death Benefit Nomination Be Made?
Superannuation death benefit nominations are not a compulsory requirement but can give those who survive you financial certainty in how to handle your super in the event of your death.
Depending on a member’s circumstance, personal events in their life should trigger a review of existing nominations just as they would trigger a review of a person’s will. Additionally, when the member statements are provided, presuming they contain the nomination data (based on the technology being used), it is also a good time to see if anyone is missing from the existing nominated dependents or if the proportion needs to be changed.
If you believe you’re the beneficiary of a deceased person’s super or are the trustee of a person’s estate, you should contact their super provider to make them aware that they are deceased, and to release their super.
Retirement might seem like a far off dream for many in the workforce, but it’s never too early to start thinking about how much money you might require to live comfortably in your golden years.
Your super balance will most likely fund your retirement, so knowing how well it is performing at your current age is a critical way to address performance issues and optimise its path going forward. You want to make sure you’ll be getting the most out of your super so that when it comes to retiring, you can afford the lifestyle you want.
The amount of super that you may need to live comfortably during your retirement may depend on a range of factors, such as expenses that you may incur, outstanding debts you may have and whether you will be eligible for other types and forms of income (such as through investments, savings, an inheritance or the Age Pension).
According to figures set out in March 2021, those who are looking to retire today (regarding individuals and couples around the age of 65) would need an annual budget of around $44,412 or $62,828 to fund a comfortable lifestyle. For a modest lifestyle, they would need an annual budget of $28,254 or $40,829 respectively.
Everyone’s situation is different, and their super balance will likely reflect those differences.
Men and women may have different super balances due to pay gaps, salary differences and potentially the amount of time they have actually spent working (maternity leave, working part-time versus full-time etc, taking time off work for travel, etc.). As an example, a woman in the 20-24 age bracket may have an average super balance of $8,051, while a man in the same bracket is expected to have an average balance of $9,481. In the 40-44 age bracket, the average super balance for men is $134,992, while women in that same age group may only possess $98,572.
So how can you make certain that your superannuation gets the boost it needs to fund your retirement? We can suggest the following:
- Track down lost super to make sure that you’re not paying for multiple fees on different accounts.
- Consider whether consolidating your funds might be a worthwhile option, to keep easier track of them.
- Review your investment options (you may want to consider switching to a more growth-focused super investment option, for example).
- Review your super at least once a year, and check the fund’s performance, fees that you are paying, what insurance you might have inside your super and if it is still suitable for your current needs.
If you’re looking towards your future, and want more advice on how to plan for your retirement with regard to your superannuation, you can speak with us or your super provider.
On 1 July 2021, the Superannuation Guarantee Rate for employees increased from 9.5% to 10% of their wage or salary. With this increase, more and more Australians are now examining what that could mean for their super’s long-term performance.
The superannuation guarantee, or SG, dictates the minimum percentage of your earnings that you need to pay into your employee’s super fund. This percentage is controlled and legislated by the Australian Government, and it is estimated that an additional $1.5 billion will be paid into the superannuation system over the next 12 months as a result of this
For most employees, this will mean an extra 0.5% added to their current salary plus super. But where an employee is on a contract where their salary is superannuation inclusive it could be that they will receive a corresponding reduction in their salary to offset the extra superannuation.
Currently, one in seven Australian employees may have seen a reduction in their wages as a result of this(as evidenced in a recent study by CoreData). Employers and employees will need to have a discussion about how this will occur for them so that everyone knows the situation they will be in for this financial year.
The continued proposed increase to 12% is still scheduled to happen, with 0.5% increments occurring each financial year until the 2025-26 financial year (when the Superannuation Guarantee Rate will peak at 12%). It might not seem like much, but with the added power of compound interest, singles may see an increase of up to $19,000 more in their superannuation accounts, and couples up to $38,000.
The rates applicable to each financial year are proposed to be:
- 1 July 2021 to 30 June 2022 10%
- 1 July 2022 to 30 June 2023 10.5%
- 1 July 2023 to 30 June 2024 11%
- 1 July 2024 to 30 June 2025 11.5%
- 1 July 2025 onwards 12%
The rate of change for the Superannuation Guarantee Rate had remained at 9.5% since 2014 and had only previously increased twice (in 2013 and 2014 respectively).
If the government decides to delay the increases to the super guarantee (as it has done in the past) you will be kept informed regarding that information. You can also speak with us if you are uncertain about what this could mean for your business, or need to make changes to current super payments.
A family trust is a great structure. It provides tax flexibility whilst giving you asset separation in two directions. But what does asset separation in two directions mean? And why might we suggest it to you as a recommendation?
First of all, why do you want asset separation? If there are multiple assets, you want to make sure that if someone makes a claim against the owner of a particular asset that your other assets can be quarantined from that claim. This isolation will mean that they can’t gain access to the assets that are yours and separate from the claim.
If you own a business and have a successful financial claim made against your business where the claim is for an amount that is more than the assets of the business, you will first need to use the business to cover the claim, and then find something additional to supplement the shortfall. In this case, if you also own your own home, and its worth is enough to cover that shortfall, it may be used to meet the claim by combining the business assets’ worth and the family home’s value. You could lose your family home!
However, if we structure your business in a particular way then the person making that claim will only have access to the assets in the business and you will be able to keep your family home.
This is what is called asset separation. Generally, it’s a good thing to employ, but it does have one flaw – it usually only goes one way.
If someone claims on your business, they won’t get the house but if they successfully make a financial claim against you, they will successfully get all of the assets that you own, including those of your business. This is a risk that you must be willing to take if you own a business.
When you operate a business through a family trust instead of owning that business, you will merely “control” it, and have but a “mere expectancy” of being considered in the distribution of any profits or capital from that business.
The good part here is that although you only have a mere expectancy to be considered, we would set it up so it is YOU that “considers” who gets the money. This means that if someone makes a claim against you then they can’t get access to assets in the family trust. What this does is give you two-way asset protection.
There is a bit of an issue with family trusts though – although you will see the debts of the trust as debts of the trust at law, they are in actual fact the debts of the trustee. If you are the trustee, all of the debts of the trust are your personal debts. You can use the trust assets to pay down those debts, but if the trust assets are insufficient to pay the debts, it will be up to you to pay off the rest.
When you’re an individual trustee of a trust, you lose the perk of asset separation, which is why a company may be used as a trustee, as the company does nothing other than act as the trustee of the trust. If there are insufficient funds in the trust to cover the debts of the trust, then those debts fall on the trustee and the creditors have no access to your personal assets because you have no individual debts owing.
Want to know more about asset separation? Interested in trusts? We’re here to help.
Last year, a number of Australians took advantage of the early access to their super that was a part of the financial support options offered by the government during COVID-19, and withdrew amounts to assist themselves. If individuals and sole traders had suffered financial hardship of at least 20 per cent due to loss of work or hours, they were able to access up to $10,000 from their retirement savings in the 2019-20 financial year. They were also able to access a further $10,000 during the second round of the scheme from 1 July 2020 – 31 December 2020.
This scheme is now closed, and Australians can now only access the funds within their superannuation fund under certain circumstances.
Access On Compassionate Grounds
Compassionate grounds will include needing money to pay for:
- Medical treatment and medical transport for you or your dependant
- Palliative care for you or your dependant
- Making a payment on a home loan or council rates so you don’t lose your home
- Accommodating a disability for you or your dependant
- Expenses associated with the death, funeral or burial of your dependant
Access Due To Severe Financial Hardship
This is not a grounds that is administered by the ATO but rather by your super provider who must be contacted to request access to your super due to severe financial hardship.
You may be able to withdraw some of your super if you meet both these conditions:
- You have received eligible government income support payments continuously for 26 weeks
- You are not able to meet your reasonable and immediate family living expenses.
You can withdraw between $1,000 and $10,000, but only once in any 12 month period.
Access Due To A Terminal Medical Condition
A terminal medical condition may allow you to access your super if these conditions are met that proves its existence:
- Two registered medical practitioners have certified, jointly or separately, that you suffer from an illness that is likely to result in death within 24 months of signing the certificate
- At least one of the registered medical practitioners is a specialist practising in an area related to your illness or injury
- The 24 month certification period has not ended
Access Due To Temporary Incapacity
If you are temporarily unable to work or need to work fewer hours because of mental health or physical condition, you may be able to access your super. This condition of release is generally used to access insurance benefits linked to your super account. Super payments will be received on a regular basis over the time that you are unable to work.
Access Due To Permanent Incapacity
Access in this instance is sometimes called a disability super benefit, and access to your super through this method generally occurs if you are permanently incapacitated. You must have a permanent physical or mental medical condition that is likely to stop you from ever working again in a job you were qualified to do by education, training or experience.
It can be received as either a lump sum or as regular payments (income stream)
Super Less Than $200
In the instance where your employment is terminated and the balance of your super account is less than $200, or you have found a “lost super” account with a balance less than $200, you may be able to access your super.
First Home Super Saver Scheme
Applying for the release of voluntary concessional and voluntary non-concessional contributions that you have made to your super fund since 1 July 2017 to help save for your first home is a valid reason for the early release of super.
You will have to meet eligibility requirements to apply for the release of these amounts. Under the First Home Super Saver Scheme, you can apply for a release of a maximum of $15,000 of your voluntary contributions from any one financial year, up to a total of $30,000 (but this amount is due to increase to $50,000 following an announcement in the May 2021 budget).
There has been a shakeup within the superannuation industry after the latest government reform passed through the Senate. You may have heard of Your Future, Your Super, which was introduced during the Federal Budget announcements of 2020-21, and wh
Your Future, Your Super was introduced during the Federal Budget 2020-21 announcements as a reform measure to address growing concerns about the performance of the superannuation industry.
Under the reform, superannuation funds will now face an annual performance test, public ranking by the Tax Office and the loss of an easy source of new members.
One of the most notable changes that have been introduced (as of 1 November 2021) is that Australians will no longer be required to fill out paperwork to avoid getting a new super fund when they switch jobs.
This measure has been designed to reduce the prevalence of unintended multiple superannuation accounts. The onus will be on the employer to check with the ATO if their employee has an existing super account, known as a ‘stapled super fund’, to pay the employee’s super guarantee into.
Super funds will also be subjected to a new annual performance test run by the Australian Prudential Regulation Authority (APRA), and underperforming products (those who show returns below 50 points ) will be labelled as underperformers. If your super is sitting in a dud fund and your nest egg is in an underperforming product, the trustees will be required to notify you within 28 days. Funds that fail the test twice in a row could be blocked from taking on new members.
Worried about how your superannuation fund may be performing, and not sure who to ask? Come have a chat with us.
There were a few changes to superannuation that were passed by the Senate recently.
You can now use the bring-forward rule to make three years’ worth of non-concessional contributions (where you don’t claim a tax deduction) up until the age of 67.
Last year the rules had changed to permit a person to make non-concessional contributions up to the age of 67 but the use of the bring forward rule had stayed at an age limit of 65 years old, as it required a full Bill to be passed by both Houses of Parliament.
This new age limit will apply to contributions made on or after the 1st July 2020. This is particularly good news for people that turned 67 during the year and utilised the three year bring forward rule in anticipation of the law being passed.
From the first quarter after receiving royal assent (most likely to occur from 1st July), Self Managed Superannuation Funds will be allowed to have up to six members. The limit is currently four members. For larger families, this will be of particular use and relevance, as the parents involved in the fund may wish to include more than two children (this could potentially be up to four children involved in this case).
Pauline Hanson’s One Nation Party also passed through an amendment into the changes that will remove a charge on excess concessional contributions. Concessional contributions are those where you or your employer can claim a tax deduction on a contribution.
If you or your employer currently contribute over the allowable caps (usually limited to $25,000 but moving to $27,500 on 1 July) to your super, you are charged an amount of around 3% of the excess you contributed and it is calculated from the 1st of July in the year that you made the contribution up until the day your assessment is due.
There are still other charges that will apply to exceeding contribution allowable caps, such as Shortfall Interest Charge and General Interest Charge. The biggest is usually the Excess Concessional Contributions Charge.
This change was never announced and was not part of government policy but made it through anyway. One Nation also tried to increase the maximum allowable tax-deductible contributions for persons aged over 67 years old, but that amendment did not go through.
Another change that had not been previously announced was that if you had an amount released from super under the Covid Relief package ($10,000 per year for two years) then you will not be able to claim a tax deduction for the same amount that you contribute back into super up until 2030.
For example, Peter took his $20,000 under the Covid Release package. Peter contributes $1,000 per month into his superannuation fund and usually claims a tax deduction for that amount.
The first $20,000 that Peter contributes after 1st July 2021 will not be able to be claimed as a tax deduction. This only applies to personal contributions, so if your employer contributes on your behalf this will not impact you.
Want more information about super contributions, but not sure where to start? Come speak with us – we can help you with any questions you may have about superannuation.
Many years ago Julia Gillard’s government announced increases in the Superannuation Guarantee rate from 9% at the time, up to 12%. The impact of the Global Financial Crisis has led subsequent governments to continually postpone these increases. So far, Australia has only received two increases, back in 2013 and 2014, when the superannuation rate went up to 9.5% over two years. It has remained at 9.5% since 2014.
Now it is time for the next increase. This will happen on 1 July 2021 when the rate of superannuation that you have to pay for most of your employees will be 10% of their salary or wage instead of the current 9.5%.
For most employers that are using payroll software, this change will happen automatically. You should however confirm with your software provider (either directly or through someone like us) that this will happen to ensure that you remain compliant without needing further action.
For most employees, this will mean an extra 0.5% added to their current salary plus super. But where an employee is on a contract where their salary is superannuation inclusive it could be that they will receive a corresponding reduction in their salary to offset the extra superannuation. Employers and employees will need to have a discussion about this so that everyone knows the situation they will be in for the new financial year.
The proposed increase to 12% is still scheduled to happen in 0.5% increments each financial year until the 2025-26 year when the Superannuation Guarantee rate will peak at 12%. The rates applicable to each financial year are proposed to be:
1 July 2021 to 30 June 2022 10%
1 July 2022 to 30 June 2023 10.5%
1 July 2023 to 30 June 2024 11%
1 July 2024 to 30 June 2025 11.5%
1 July 2025 onwards 12%
It is also possible that the government will delay the increases as it has done in the past, but you will be kept informed regarding that information.