Business & Finance Wealth Building

What Is Superannuation?

In Australia superannuation (super) is a retirement program covered by government legislation.
It is designed to provide and encourage individuals to build a nest egg they can draw on in retirement.
Part of the government's incentive to encourage super is provided by tax concessions on both contributions and withdrawals.
There are two phases to superannuation.
The first is what we call accumulation phase.
This is when contributions are being made to super by your employer, yourself or another party.
The second phase is pension phase which is when you are eligible to withdraw your super normally as a regular income stream but also as lump sum withdrawals.
The main differences between accumulation and pension phases are:
  • Investment earnings are taxed upto 15% in accumulation phase but are tax free in pension phase.
  • Contributions can only be made to an accumulation account, not a pension account
  • You can have an accumulation account and pension account operating at the same time
  • You can stop a pension account at any time by withdrawing the funds, if eligible or transferring the funds back to an accumulation account
Contributions There are two types of contributions which can be made into super.
  • Pre-tax contributions also referred to as concessional contributions
  • After-tax contributions also referred to as non-concessionalcontributions
Pre-tax contributions (concessional) These contributions are treated as assessable income when made to a super fund.
The government applies 15% tax to these contributions which is deducted by the super fund and paid to the tax office.
Pre-tax contributions include:
  • Employer contributions
  • Salary sacrifice contributions
  • Deductible contributions made by qualifying individuals or self-employed people.
While there is no limit on the amount of pre-tax contributions which can be claimed as a tax deduction, there are limits on the amount of pre-tax contributions which an individual can receive concessional tax treatment (15%) on.
If you are under 50, your contribution cap limit is $25,000 for the 2011/12 financial year or $50,000 if you are over 50.
These amounts are subject to indexing and constant review by the government so make sure you know the limits each year.
If you exceed the cap limit the excess is taxed at 31.
5% and remember the cap limit includes the compulsory 9% employer contributions.
After-tax contributions (non-concessional) These contributions are not treated as assessable income to a super fund and therefore no tax is applied on these contributions.
The maximum amount that can be contributed to a super fund is set at 6 times the pre-tax limit, which is currently $25,000.
Therefore a person is allowed to contribute up to $150,000 in the current 2011/12 financial year.
Unlike pre-tax contributions this limit is the same for all persons regardless of age.
If you are under 65, you can also bring forward up to two additional years of your after-tax contribution cap limit making it possible to contribute up to $450,000 in one financial year.
A person who is 65 or older is not able to bring forward their cap limits and must meet the work test in order to make a contribution after turning 65.
After-tax contributions can include the following types of contributions;
  • Personal contributions made with after-tax income.
  • Proceeds from the sale of a business or asset
  • Proceeds from an inheritance
  • Transfer of all or part of an overseas super fund.
  • Pre-tax contributions in excess of your contribution limit
  • Contributions made by your spouse (non-employer)
SHARE
RELATED POSTS on "Business & Finance"
Safe Highest-return Investment. Earn Highest Yield On Deposits!
Safe Highest-return Investment. Earn Highest Yield On Deposits!
Money And You - Get The Right Wealthy Mindset
Money And You - Get The Right Wealthy Mindset
Proven Investment Strategies for Economically Hard Times
Proven Investment Strategies for Economically Hard Times
Gold History - Relationship Between Gold and Money
Gold History - Relationship Between Gold and Money
Determining Your Financial Freedom Goal
Determining Your Financial Freedom Goal
Bernard Madoff - 50 Billion Reasons to Invest in Hard Money - Private Mortgage Loans
Bernard Madoff - 50 Billion Reasons to Invest in Hard Money - Private Mortgage Loans
Attract Wealth
Attract Wealth
To Be a Millionaire Would Be Nice
To Be a Millionaire Would Be Nice
Total Financial Freedom: Being Debt Free With Some Money To Save
Total Financial Freedom: Being Debt Free With Some Money To Save
Why You Need to Change to Become Wealthy
Why You Need to Change to Become Wealthy
Quickest Ways to Make Money
Quickest Ways to Make Money
To Start Making More Money You Need to Make Investments - In Yourself
To Start Making More Money You Need to Make Investments - In Yourself
Factors that Influence Increased Interest in Container Investments
Factors that Influence Increased Interest in Container Investments
What Is Superannuation?
What Is Superannuation?
How Anyone Can Achieve the Wealth of the 1%
How Anyone Can Achieve the Wealth of the 1%
Understanding The Principles of Multiple Streams of Income
Understanding The Principles of Multiple Streams of Income
The Only Three Things That Can Make You Rich
The Only Three Things That Can Make You Rich
Five Ways to Make Money Online
Five Ways to Make Money Online
Expected To Elevate Interest Rates Within The Although The Loan Interest Rate Hike Prior To The Lock
Expected To Elevate Interest Rates Within The Although The Loan Interest Rate Hike Prior To The Lock
How Can I Make More Money? Make Sure You Get the Right Education
How Can I Make More Money? Make Sure You Get the Right Education

Leave Your Reply

*