‘Super Top Up’ Strategies Smart ways to save on tax and boost your retirement outlook >

‘Super Top Up’ StrategiesSmart ways to save on tax and boost

your retirement outlook

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• Your experience?• Your areas of specialty?• Your training? • Your education?

Why invest in super?• Super can be a tax-effective savings vehicles - helping

you save more for (and during) your retirement. • Super benefit payments are generally tax free (after age

60)• Investment earnings are taxed at 15% within super vs up

to 49% outside of super).• Every extra contribution makes a difference to improving

your lifestyle in retirement.• There are limits on how much you can put into super, so

you can’t leave it to the last minute to lump large sums.

Government incentives and its tax-effective nature make super a very attractive investment vehicle to save for your retirement.

GROW your super with contribution cap changes!Recent super changes mean you now have an opportunity to add more to your super – helping you save more and boost your retirement outlook.

On 1 July 2014 the concessional contributions cap increased to $30,000 (from $25,000). However if you are age 50 or over on 30 June 2015, you have a higher concessional contributions cap of $35,000.

The non-concessional contributions cap also increased to $180,000 (from $150,000) or $540,000 (from $450,000) using the bring-forward rule.

Why invest in super? – case study

Meet Simon• 40 years of age• Earns $75,000 p.a.• Has $80,000 in savings to invest

Let’s compare investing outside super versus investing

inside super.

Why invest in super? – case study cont…

Simon invests $60,000 in shares and $20,000 in cash:

Investment outside super

Investment inside super

Total amount invested $60,000 in shares

$20,000 in cash

$60,000 in shares

$20,000 in cash

Total investment amount after 20 years

$267,029 $334,057

Investing outside and inside super means a big difference of $67,028

Investing outside super vs. inside super

Assumptions: Marginal tax rate outside super is 34.5% (including Medicare Levy and Temporary Budget Repair Levy). CGT and income tax is taken into account at all times. CGT discount for 12 month ownership applied (50% in personal name, 33.33% in super fund). Net of tax earnings are reinvested. Tax rate inside super is 15%. Returns from the portfolio are 8% (5% capital gain, 3% income) both inside and outside super. 80% of the income from the portfolio is franked.

Will you have enough?• Super is a primary source of income for most Australians in

retirement.• However, many of us are not saving enough to achieve a

comfortable retirement.

1 Source: The Association of Superannuation Funds of Australia Limited (ASFA), ‘Retirement Standard’, June 20142 Effective from September 2014

Retirement income required to retire comfortably1

Current government age pension rate2

Single $42,433 p.a. $22,211.80 p.a.

Couple $58,128 p.a. $33,488.00 p.a.

• Will your super be enough to make up the difference?• Do you want more than a ‘comfortable’ retirement?

<Salary sacrifice slides>

Strategy: salary sacrificeSalary sacrifice to tax-effectively save for retirement by contributing more into super.

What is it?

Salary sacrifice is an arrangement with your employer where you agree to forgo part or all of your pre-tax salary, in return for your employer making superannuation contributions for the same amount.

How can you benefit?

•Boost your retirement savings.

•Your salary sacrifice contribution is generally taxed at 15% inside super rather than at your marginal tax rate outside of super.

Strategy: salary sacrifice

Who can this strategy work for?

Salary sacrifice can work effectively if you:• want to grow your retirement savings sooner• are under 75 years of age*• are eligible to contribute to super• generally have a marginal tax rate above 15%• can salary sacrifice income without it having a major

impact in your lifestyle• have an employer willing to establish a salary sacrifice

agreement.

* Contributions may be received on or before the 28th day of the month following the month the member turns 75

Concessional contributions cap

Concessional contributions (those made with pre-taxincome):• are generally subject to 15%^ contributions tax in your

super fund up to the cap and include: – employer contributions such as Super Guarantee and

salary sacrifice contributions– personal deductible contributions for which a tax

deduction has been allowed.Concessional contributions cap• For 2014/15 financial year the general concessional cap

is $30,000. For members 50 years and over is $35,000.

<<optional slide to include >>

^ up to 30% for those earning $300,000 or more p.a.

Contributions cap – case study

Meet Julie• 45 years of age • earns $70,000 p.a.• wants to start saving for a comfortable retirement.

Contributes:

1. SG (9.5% i.e. $6,650)

2. 50% of Concessional Contributions cap ($15,000)

3. 100% of Concessional Contributions cap ($30,000)

Contribution Caps – case study

Assumptions: CGT and income tax is taken into account at all times. CGT discount for 12 month ownership applied (33.33% in super fund). All earnings are reinvested (less tax for income). Tax rate inside super (including on contributions) is 15%. Returns from the portfolio are 8% (5% capital gain, 3% income). 20% of the income is franked.

Salary sacrifice – case study

Meet Carol• 45 years of age • earns $70,000 p.a.• wants to start saving for a comfortable retirement.


Salary sacrifice vs. investing after-tax money • Carol has $5,000 gross salary p.a. to invest• If she takes $5,000 as cash

(after income tax of 34.5%*) = $3,275• If she salary sacrifices $5,000 into super

(after15% contributions tax) = $4,250 • Difference is $975 more to invest• Remember, her investment earnings within super are taxed at

15%, instead of a marginal tax rate of 34.5%* outside super.

*This example assumes a marginal tax rate of 34.5%, however this may not be applicable to you. Please see your tax adviser for further information on how this impacts your individual circumstances.

Result:In this example Carol can accumulate savings faster.


Assumptions: For the purpose of this case study Carol’s marginal tax rate is 34.5% (including Medicare Levy and Temporary Budget Repair Levy). CGT and income tax is taken into account at all times. CGT discount for 12 month ownership applied (50% in personal name, 33.33% in super fund). All earnings are reinvested (less tax for income). Tax rate inside super (including on contributions) is 15%. Returns from the portfolio are 8% (5% capital gain, 3% income) both inside and outside super. 20% of the income is franked.

Salary sacrifice - things to remember

Salary sacrifice contributions count as income for the following measures:•Centrelink income-tested payments •Government co-contribution•Low income superannuation contribution•selected tax offsets•family tax benefit (FTB) Part A & B•personal deductible contributions to super•Medicare levy surcharge (income threshold).

< What if you’re ‘self employed’? Personal deductible

contributions slides >

Strategy – personal deductible contributions

Obtain a tax deduction on your personal contributions to super.

What is it?•By making a personal contribution to super, you may be able to claim a tax deduction in your tax return, if you meet the eligibility requirements. Any personal contribution you claim as a tax deduction will be taxed at 15% in the superannuation fund.

How can you benefit?•You grow your retirement savings faster.

Strategy – personal deductible contributions

Who can this strategy work for?• Retirees, self-employed, homemakers or unemployed

persons who:– Earn less than 10% of their income from employment– Are under age 75– Are eligible to contribute to superannuation

* Contributions may be received on or before the 28th day of the month following the month the member turns 75

Case study 1 – personal deductible contributions to reduce taxMeet Helen• 43 years of age• Self-employed florist earning $75,000 p.a.• Marginal tax rate of 34.5%* • Makes a $25,000 personal deductible contribution into super

and submits a notice of intent to claim a tax deduction.

Helen’s super contribution is taxed at 15% in the fund, not her marginal tax rate of 34.5%*.

*Includes Medicare levy and Temporary Budget Repair Levy

Helen achieves $4,875 in additional retirement savings (19.5%* of $25,000)

Case study 2 – personal deductible contributions to reduce CGT liability Meet David• 61 years of age• Self-funded retiree• Sold an investment property for $250,000 and made a

$25,000 assessable capital gain• Marginal tax rate is 34.5%*• Contributes $25,000 into super • Benefits by offsetting his CGT liability as well as growing

his super.


*Includes Medicare levy Temporary Budget Repair Levy

Case study 2 – personal deductible contributions to reduce CGT liability

By making the deductible contribution David has achieved $4,875 in additional retirement savings.


Before strategy After strategy

Assessable capital gain $25,000 $25,000

Less deduction forsuper contribution

$0 $25,000

Taxable capital gain $25,000 $0

Less tax payableat 34.5%

$8,625 n/a

Less 15% supercontributions tax

n/a $3,750

Net amount $16,375 $21,250

Note: this example does not consider CGT discount eligibility.

Strategy – personal deductible contributionsTips and traps• After the end of the financial year, you should receive a

letter from your super fund asking if you intend to claim a tax deduction for your personal contributions. Be sure to consult your financial adviser before replying.

• Alternatively, you will need to provide a tax deduction notice to your super fund before you withdraw, rollover or commence a pension.

• Ensure you have notified your super fund (and received acknowledgement) that you intend to claim a tax deduction for your personal contributions.


Strategy - personal deductible contributions

Things to remember•Personal deductible contributions count as income for the following measures:

– selected tax offsets– family tax benefit (FTB) Part A & B– Medicare levy surcharge (income threshold).– Low income superannuation contribution

< Insurance through superannuation>

Insurance through super

• Purchasing life insurance through super may be a tax effective strategy.• Did you know that most Australians are underinsured?• Having sufficient life insurance cover is important so you and your family are protected if anything happens.

What is it?This strategy involves holding your insurance through your super account

and using your contributions or existing balance to pay for the premiums.

Strategy – insurance through super

How does it work?

Insurance can be purchased through a super fund with:• your existing super savings• your pre-tax income by having your employer make

salary sacrifice contributions• your employer’s Super Guarantee contributions• personal contributions for which you intend to claim as a

tax deduction (if you meet the eligibility requirements)• personal after-tax contributions.


How can you benefit?• Top up your stand-alone insurance policies and increase

your overall coverage.• Premium may be cheaper as the super fund is buying

the insurance ‘in bulk’.• You may receive a Government co-contribution if you

fund the cover by making after-tax contributions.• Your qualifying dependants can receive tax-free super

lump sum benefit payments if you, the insured, pass away.


Who can this strategy work for?

Insurance through super is suitable if you:• want to tax-effectively hold insurance• want your qualifying dependents' to receive a tax-free

super lump sum benefit payments if you pass away• have restricted cash flow and want to use your

accumulated super balance to pay for premiums.

Insurance though super - case study

Meet Tim• 37 years of age• Earns $85,000 p.a. • Is currently paying $1,200 p.a. in insurance premiums for

Death & TPD Cover outside super• His spouse, Anita, is listed as sole beneficiary

Insurance though super - case study

Let’s compare paying for this insurance premium outside

super versus inside super:

Outside super Inside super

Premiums owed $2,000 $2,000Amount of pre-tax income required

$3,279* $2,000

Tax paid $1,279 $0Savings $0 $1,279

Tim saves $1,279 per annum

* at a marginal tax rate of 39% (including Medicare levy and Temporary Budget Repair Levy)

Insurance through super - considerations• How will your retirement funds be impacted with super

monies used to fund insurance premiums?• Is it enough?• Is the structure right?• Who will be the beneficiaries?• How will the benefits be taxed (e.g. income stream vs

lump sum benefit payments)?• Does the insurance complement the intentions of your

Will?• Understand the role of the trustee

Earn an extra 50% return on your investment.

<Government co-contribution slides >

Strategy: Government co-contributions

Boost your retirement savings with help from the

Government.

What is it?

The co-contribution scheme is where the Government may contribute towards your super if you are a low-to-middle income worker and make a voluntary after-tax contribution for which a tax deduction has not been claimed.

Strategy: Government co-contributionHow does it work?

You may receive 50c for every $1 of after-tax money you contribute to your super, up to a maximum $500 for the 2014/15 financial year.

This is a greatincentive for you tocontribute to yoursuper.

Income Maximum co-contribution

Contribution required to

receive maximum co-contribution

$34,488 or less $500 $1,000

$37,488 $400 $800

$40,488 $300 $600

$43,488 $200 $400

$46,488 $100 $200

$49,488 or more

$0 $0

Strategy: government co-contributionWho does this strategy work for?

You may be eligible if:• you earn at least 10% of your total assessable income

(plus reportable fringe benefits and reportable employer super contributions) from employment or your own business

• your total income is less than $49,488 for 2014/15 financial year.

• you are under 71 years of age as at 30 June 2015• you haven’t held a temporary resident visa at any time

during the income year• you lodge an income tax return.

Non-concessional contributions cap• An annual non-concessional contributions cap applies

each financial year. The non-concessional cap is currently $180,000 for 2014/15 and will be indexed over time.

• If you are under 65 years of age on 1 July of the financial year, larger contributions of up to $540,000 can be made by bringing forward two years’ contributions caps. The bring-forward is automatically triggered when your after-tax contributions are more than $180,000 in a particular year

• Contributions in excess of the cap will attract excess contributions tax of 49%*.


* The Government proposes to introduce the option to withdraw excess non-concessional contributions and any associated earnings from 1 July 2013.

Government co-contribution – case study

Meet Alyssa• 42 years of age• Earns $30,000 p.a.• Wants to take advantage of Government co-contribution

scheme• Makes after-tax contribution of $1,000 to her super• She is eligible to receive a Government co-contribution

of $500 (in 2014/15).

< Spouse contributions slides >

Strategy: spouse contributions

Contribute to your spouse’s super, for a tax-effective way to save for retirement together.

What is it?

This strategy allows you to make after-tax contributions to your spouse’s super fund to boost their retirement savings.

Strategy: spouse contributions

How does it work?• If your spouse’s assessable income (plus reportable

fringe benefits and reportable employer super contributions) are $10,800 or less, you receive an 18% tax offset (up to a maximum of $540) on the first $3,000 of your after-tax spouse contribution.

• The tax offset reduces if you spouse’s income is greater than $10,800 and cuts off once your spouse’s income reaches $13,800.

• You must both be Australian residents for tax purposes.

Strategy: spouse contributionsHow can you benefit?• Receive a maximum $540 tax offset (18% on the first

$3,000 you contribute).• Grow your retirement savings together as a couple.• Build wealth even if one spouse isn’t working since

earnings within super are generally taxed at a lower rate than investments outside super.

Who does the strategy work for?Generally, you can make spouse contributions on behalf ofyour spouse if:• they are under 65 years of age or• they are between 65 to 69 and have been gainfully

employed for at least 40 hours over 30 consecutive days during the year.

Spouse contributions – case study

Meet Craig and Angela• Craig, aged 35, earns $120,000 p.a. and has reached

his concessional contributions cap• Angela, aged 35, homemaker earning $8,000 p.a.• Craig invests a further $3,000 after tax money into

Angela’s super• Result – Craig receives a $540 tax offset

Craig and Angela are tax-effectively saving for their retirement.

< Contributions splitting slides >

Strategy: contributions splitting

Splitting super contributions is another way to

tax-effectively save for retirement.

What is it?• This strategy allows you to split your employer super

contributions and personal deductible contributions with your spouse.


How does it work?• Works according to ‘annual split’ model.• Need to apply to your super fund to request split.• You can only split up to the lesser of your concessional

contributions cap, the taxable component of your account and 85% of the concessional contributions.

How can you benefit?• Earlier access to super benefits and tax concessions.• Tax-effective funding of life insurance through super for

your spouse.


Who does the strategy work for?

Contributions splitting is suitable if you:• want to boost your spouse’s super savings• have a spouse who is eligible to receive super

contributions• have a spouse who will reach preservation age or age

60 sooner.


Rules

Be aware that contributions splitting: • is not offered by all super funds• can only be made in the favour of a spouse• is subject to preservation rules and contributions cannot

be generally accessed until a condition of release is met• applies to employer super contributions and personal

deductible contributions.

Contributions splitting – case study

Meet Erica and Steve• Both 55 years of age• Erica earns $110,000 p.a. and Steve is retired• Over last few years, Erica has salary sacrificed

contributions into super and accumulated an extra $250,000.

• Erica wants to retire and use $250,000 to purchase a property.

• First $185,000 is tax-free but the other $65,000 is taxed at 17% = $11,050.

Contributions splitting – case study

• If Erica and Steve built up their accounts evenly by splitting the contributions ($125,000 in each account), and they both had access to the low rate cap, there would be no tax on the withdrawal from each account.

This strategy provides them with an additional $11,050 and give them more money to pay for the property

purchase.

< Transition to retirement slides >

Strategy: transition to retirement

Ease into retirement or build your retirement benefits by commencing a transition to retirement (TTR) pension.

What is it?•TTR allows you to access your super benefits, once you have reached preservation age, in the form of a income stream.•You don’t have to retire or reduce your hours of work.


How does it work?

Here are some ways you can use TTR to your advantage:• Maintain your current lifestyle and spend fewer hours

at work – by drawing from your accumulated super benefit through a TTR pension.

• Work the same hours and boost your retirement savings and/or current income – by setting up a TTR pension and salary sacrificing extra amounts to your super.


How can you benefit?• Maintain income level through a combination of salary

and pension income using a salary sacrifice and pension strategy

• No tax on investment earnings in pension phase, compared to a maximum rate of 15% tax on investment earnings in accumulation phase.

• Salary sacrifice is a tax-effective way to save more.• Receive 15% tax offset on taxable component of income

payments under 60 years of age.• Receive tax-free pension payments from 60 years

of age.


Who does the strategy work for?

TTR is suitable if you:• have reached preservation age• want to continue working• want to reduce your working hours and supplement your

reduced salary by drawing from a TTR pension.

Transition to retirement – case study

Meet Patrick• 60 years of age• Earns $58,800 p.a. ($47,085 after tax)• Has $400,000 in super• Wants to boost retirement savings and gain tax

advantage by salary sacrificing and maintain his take home pay.

Transition to Retirement – case study

Let’s look at how he can do this through a TTR strategy:• Patrick salary sacrifices $29,414* into his super (taxed

at 15% inside super rather than at marginal tax rate)• He transfers his $400,000 preserved super

entitlements into an account-based TTR pension• To help his cash flow, he will receive tax-free pension

payments of $20,000 p.a.^• Combined with his remaining work salary, this allows

him to increase his income level.

*Concessional contributions cap $35,000 less 9.5% SG contributions of $5,586

^ Assuming no untaxed component.

Transition to Retirement – case study

Cash flow impact

Current position ($) With strategy ($)

Original salary 58,800 58,800

Salary sacrifice contributions (0) (29,414)

Transition to retirement pension 0 20,000

Total income 58,800 49,386

Taxable income 58,800 29,386

less income taxes (11,505) (2,058)

Cash flow 47,295 47,328

Here’s how it works:

Assumptions: No taxation deductions have been claimed. The super guarantee is assumed unchanged at 9.5% of the pre-sacrificed salary. 2014/15 marginal tax rates and offset thresholds used (includes low income tax offset, mature aged worker tax offset and pension tax offset only). Tax free ratio is 100%. 6% return on superannuation accumulation interest, pension returns grossed up based on average tax rate in accumulation of 10%. This information is provided for illustrative purposes only.

This strategy maintains Patrick’s income while boosting his retirement savings by $7,852 after year one.

< Options once you’ve reached your contributions caps >

Options once you’ve reached your contributions capsWhat options are available?• If non-concessional contributions cap is reached,

concessional contributions such as salary sacrifice may be available.

• If concessional contributions cap is reached, non-concessional contributions using after-tax money may be appropriate.

• You can also consider non-super strategies:– such as an investment bond, where earnings are taxed internally

at a rate of 30%, or– a unit trust investment, where earnings are taxed at marginal

rates.

Options once you’ve reached your contributions capsWho can these strategies work for?

People who:• have maximised your contribution caps• have a marginal tax rate of 30% or above, or• are looking for wealth accumulation strategies with

access to capital.

Consolidating your super

Benefits of consolidating your super

• Save on fees – one fund means one set of fees.• Simplify - keep better track of your investment when it’s

in one place.• By having all your super together it’s easier to plan for a

future that includes a comfortable retirement.

Final thoughts

• Many Australians may not be saving enough to achieve a comfortable retirement. Super is a primary source of income for most Australians in retirement.

• Don’t rely on the Government pension. The max pension rate per fortnight for a single person is approx. $854.30 and $1,288.00 for a couple.1

• Super is a tax-effective savings plan to help you save more for your retirement. Investing more today can make a significant difference to your savings and lifestyle in retirement.

1 These figures are effective from 20 September 2014.

Act now and get assistance today

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Phone:

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Email:

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Boost your retirement savings before the end of financial year.

Call me if you’d like to find out more about how I can help.

<< end slide >>

General disclaimer

This material is current as at October 2014, but may be subject to change. It has been prepared without taking into account your objectives, personal financial situation or needs.

<<Adviser name>> is an Authorised Representative of <<company name>> <<ABN>> <<AFSL>>.

This information is of a general nature and has been prepared without taking account of your personal needs, financial circumstances or objectives. Before acting on this information you should consider whether the information is appropriate for you having regard to your personal needs, financial circumstances or objectives. Please see your adviser for advice taking into account your individual circumstances. This is our interpretation of the law and does not represent tax advice. Before making any financial decision, <<company name>> recommends you should seek independent tax advice specific to your individual circumstances from a tax adviser or registered tax agent.

The case studies are hypothetical and are not meant to illustrate the circumstances of any particular individual.

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‘Super Top Up’ Strategies Smart ways to save on tax and boost your retirement outlook >