Basics about Super – An Overview of Super in Australia

Basics about Super – An overview of Super in Australia

Basics about Super – An Overview of Super in Australia

Super is a long term savings arrangement by the government in Australia to save for your retirement, to ensure Australians have enough income in retirement.

The money comes mainly from employers, self-employed, and your own top up as employees and for family members (on behalf of others) as contributions to a super fund. The Government will sometimes also add to your super with co-contributions and the low income super contribution.

Currently the employer (concessional) contribution is 9.5% from 1 July 2014, called the Super Guarantee, and is increasing to 12% by 2019. Over time these contributions add up or “accumulate” which is known as accumulation phase, and the money is invested so it grows over this time, as a life-time investment.

Contributions can be made to either of 3 types of fund accounts (you have choice of fund):

  • Independent Large Super Funds – retail, industry, bank and financial institutions (APRA – Australian Prudential Regulatory Authority is the regulator);
  • Retirement Savings Accounts (RSA) banks, institutions (rare);
  • Self-Managed Super Fund (SMSF) you manage it (ATO – Australian Tax Office is the regulator), also known as SMSF or DIY funds.

Super is a low tax saving environment – currently 15% on contributions in from employers etc, and 15% in income earned on the invested super money – eg dividends, interest etc.

The 9.5% employer contributions are based on your ‘ordinary time earnings’. For example, if your ordinary time earnings are $50,000 then you should be paid an additional $4,750 into super.

Ordinary time earnings are what employees earn for their ordinary hours of work including over-award payments, bonuses, commissions, allowances and certain paid leave. See the ATO’s information on using ordinary time earnings to calculate the super guarantee.

You can make extra contributions by:

  • Putting some of your savings into your super account;
  • Asking your employer to deduct extra money from your pay (before tax is taken out) and pay this into your super account – this is called contributing extra to super;
  • Transferring super from another fund into your main super account on a regular basis.

For self-employed people, your super contributions may be tax deductible. To calculate what amount of super you should be receiving form employment, the ASIC (Australian Securities and Investments Commission) MoneySmart website has a calculator.

Most people can choose which super fund they’d like their super contributions paid into. If you want to choose your super fund, tell your employer by filling in a Standard choice form from the Australian Taxation Office (ATO) or from your employer.

In some cases your employer will decide which fund your super is paid into. If you don’t (or can’t) choose your super fund, your employer will put the money into a ‘default’ super fund, a fund nominated under an industrial award or by your employer.

See choosing a super fund at MoneySmart for more information.

Money in your super fund account is invested by your super fund. Most super funds offer a variety of investment options.

For example, if you choose a market-linked investment, the value of your super will move up and down with market movements. Or you might select a stable option with lower expected returns but fewer ups and downs.

You can choose how you’d like your money invested, if you want to. You can also transfer your money to a different investment option within the fund, or transfer to another super fund at any time.

See super investment options for more information.

When you retire and have reached your preservation age (i.e. 55 to 60), you can withdraw your super. There are three ways you can get your super:

  • As a lump sum
  • As a retirement income stream (e.g. a monthly payment)
  • A combination of both

If you choose to take your super as a retirement income stream, the money that you’re not accessing continues to work for you and earn interest. See income from super for more information.

Superannuation law is changing over the next few years.

To find out more about the changes see ASIC: Stronger Super.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and YouTop right hand side above.

If you have any questions, why not give us a call – It’s FREE also! No obligation. 0407 361 596, Paul.

And book for our next  FREE SeminarSelf Managed Super Fund Roadmap – all you need to know plus bonuses see HERE and our SMSF and Property Boost to Super (combined) Free Seminar HERE

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Masterclass SMSF – Transition to Retirement – What are the steps and advantages when you have self-managed super?

Masterclass SMSF – Transition to Retirement - What are the steps and advantages when you have self-managed super?

SMSF – Transition to Retirement – What are the steps and advantages when you have self-managed super?

Transition to Retirement is a strategy for people to consider when they are 55 and over and meet a condition of release and here we look at and what are the steps and advantages when you have a self-managed super fund (SMSF).

For the details about Transition to Retirement (TTR or TRIS – Transition to Retirement Income Stream) see HERE.

STEPS to set up Transition to Retirement (TTR/TRIS)

When used as a tax strategy, if your income tax rate is more than 15% then TTR could provide benefits while still building your super, and maintain your current income, but reduce the tax you pay.

  1. Check the SMSF Trust Deed allows a TTR strategy (to avoid contravention).
  2. Calculate the results on several amounts to salary sacrifice and the tax due on the lower salary – this is usually the next tax bracket below your current salary, ie sacrifice enough to bring your gross salary into the next lower tax bracket.
  3. Prepare member letter to apply to the Trustees to start a pension/income stream account with some of your super monies, leaving some in accumulation account, or start another accumulation account for employer contributions to your fund. Record the Trustee Resolution of Minute of the Meeting that tabled the TRIS application.
  4. Arrange the salary sacrifice with your employer and draw a regular pension payment from the super. The salalry sacrificed amount will be PAYG taxed at a reduced rate (concessional), which means less tax when going into the fund instead of your marginal rate, and PAYG will need to be paid by the super fund when paying you.
  5. Check the calculations to determine what amounts work best for your case. Always seek professional assistance to ensure laws are not breached and that there is really a tax advantage.

Advantages

  1. Tax on your pension/income stream and salary should overall be less than your current tax (PAYG).
  2. Overall take-home pay can be maintained, while saving tax.
  3. No tax on investment earnings in the pension account. Only tax on the Income Stream you take, when in your hands.
  4. You can potentially be increasing your super faster than the employer %.
  5. Increased super can sometimes mean you could reduce your work hours, and receive a similar income.

If you would like a no-obligation discussion of possible strategies, give Paul a call 0407 361 596

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596, Paul.

And book for our next  FREE Seminar – Self Managed Super Fund Roadmap – all you need to know plus bonuses see HERE and our SMSF and Property Boost to Super (combined) Free Seminar HERE

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NEWS – 40% of Australians retire 5 years before financially ready

NEWS – 40% of Australians retire 5 years before financially ready

40% of Australians retire 5 years before financially ready

It seems there are factors OUTSIDE people’s control that could mean you become one of the 40% of Australians who retire before you are financially ready – 5 years too early!

Nicholas O’Donoghue writes in Money Management –
“Uncontrollable factors are derailing the best laid retirement plans of many Australians, with the average retiree outliving their superannuation savings by five years, new research reveals. Data from Mercer’s ‘Expectations versus reality of retirement’ survey showed that 40% of Aussies were forced into earlier retirement before they were financially ready, due to redundancy or for health reasons. While half the population underestimated their life expectancy by more than two years, with one in four white collar workers living four years longer than average. Although the survey found that a large proportion of pre-retirees & retirees were concerned about the longevity of their savings, Mercer’s managing director and Pacific market leader, David Anderson, said few had a formal plan to address this issue, with just one in three engaging a financial planner.

“Despite most of us believing we’ll work and save for our retirement well into our 60s, the reality is that uncontrollable triggers can derail the best laid plans for retirement,” he said. Read MORE

Get our FREE Expert Guide Self-Managed Super and You – it has all the info you need to know, with bonus TIPS and CHECKLISTS  to determine if SMSF is for you and what steps are needed to set up, as well as how to get your SMSF set up FREE . It also gives you ALL the Aust Tax Office publications about SMSF (NAT XXXX). Get your copy now – click “Download” top right hand side above. You’ll also get monthly SMSF news, investment teaching and upcoming seminar and workshop briefs! Download your FREE Guide now!

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MASTERCLASS Investing – What is Debt to Equity and how is it used by investors in analysing healthy companies to invest in?

MASTERCLASS Investing – What is Debt to Equity and how is it used by investors in analysing healthy companies to invest in?

Investing – What is Debt to Equity and how is it used by investors in analysing healthy companies to invest in?

When looking for financially strong companies to invest in, one fundamental ratio, Debt to Equity (D/E) gives us a measure of a company’s financial leverage (borrowings) calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets.

The ratio formula is:

Debt to Equity =   Total Liabilities

                                 Total Equity

***Note – Sometimes only the interest-bearing, long-term debt is used instead of total liabilities in the calculation.

How It Works/Example:

Let’s assume Company ABC has:

  1. Total liabilities $10,000,000  and
  2. Shareholders’ equity of $20,000,000, and

then we can calculate Debt to Equity as: D /E = $10,000,000/$20,000,000 = 0.5 or 50%

This means that Company ABC has Debt that is 50% of shareholders’ equity.

Having a high debt/equity ratio generally means investors say the company has been aggressive in financing its growth with debt. However, this can result in volatile earnings as a result of fluctuating interest rates. 
But if debt is used to finance increased operations (high debt to equity), the company has the potential to generate more earnings than it would have without this outside financing.

The D/E ratio is also closely monitored by the lenders and creditors of a company, since it can provide early warning that an organization is too weighted by debt that it is unable to meet its payment obligations. There can also be a funding issue. For example, the owners of a business may not have/want to contribute any more cash to the company, so they acquire more debt to address the cash shortfall. Or, a company may use debt to buy back shares, thereby increasing the return on investment to the remaining shareholders.

To see what under 50% D/E can mean to a company, more examples with Telstra, and Buffet’s take on Debt, see our other article MASTERCLASS Investment – Debt to Equity explained

Want to learn the core issues of share investing? Our workshop Navigate to Successful Share Investinggives a 2.5 hour practical session to learn to easily understand Company Financial Statements, how to find healthy companies, what tools and ratios to use, work on examples, and also includes how to get better investment outcomes. Other Bonuses as well. Check the next one see Share WORKSHOP or call 0407 361 596

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NEWS – Avoiding Fraudulent Investments in your Self-Managed Super Fund

NEWS – Avoiding Fraudulent Investments in your Self-Managed Super Fund

Avoiding Fraudulent Investments in your Self-Managed Super Fund

Christine St Anne is Morningstar’s online editor, and wrote a timely reminder and suggestions for avoiding fraudulent investments in your self-managed super fund (as well as any investment!) in her article Avoiding a Super Fraud

It was only a couple of years ago when the collapse of the Trio Capital left 6,000 people without their superannuation savings. Around $180 million of investors’ money was lost.

Only one person involved in the scam was sent to gaol, while 10 of the perpetrators were subjected to industry bans. History could well repeat itself following media reports about a recent government inquiry into financial scams.

Australia’s $1.8-trillion superannuation industry is increasingly being targeted by criminals, The Australian newspaper reported last week.

According to Australian Federal Police deputy commissioner Michael Phelan, self-managed superannuation funds (SMSFs) are particularly vulnerable to organized crime.

Phelan told The Australian“A lot of this money is available for sophisticated criminals to have a go at.”

As investors struggle to get greater investment returns, people should be vigilant when being tempted by lucrative offers, Phelan noted.

It might seem difficult to understand how sophisticated investors like SMSF trustees can be caught up in fraud. However, Phelan believes such fraud is seriously under-reported because people are embarrassed that they have been duped, particularly professionals such as doctors, lawyers and accountants.

Phelan’s views were echoed by Australian Crime Commission chief Chris Dawson. The same article noted that Dawson agrees that the SMSF sector is one that needs to be given close attention, not just by law enforcement and the regulators, but by the investors themselves because super is not used as an everyday account.

He said criminal entities would exploit this sort of area because investors don’t monitor it themselves and can’t rely on the regulators to do so.

Given what happened with Trio, the onus seems to be on the investor when it comes to taking responsibility for avoiding financial scams.

So, what can investors and SMSF trustees do to prevent themselves from being victims of fraud?

It is difficult, as a lot of websites are very sophisticated and can even look more real than the original company website, SMSF Professionals’ Association of Australia (SPAA) director of technical and professional standards Graeme Colley says.

Nevertheless, trustees can do some simple checks on such websites, he says.

Investors should check that the data is not outdated and that any click-throughs in the website actually land on relevant pages.

Colley also says trustees should ensure the adviser has an Australian financial services licence (AFSL).

“Investors should do a check on that person. Besides checking on whether that adviser has an AFSL, investors should also ask their peers or industry professionals about the business,” he says.

Trustees and investors can also fall victim to identity theft. The government’s moneysmart website provides simple and handy tips on how to avoid this sort of scam:

  • Never give your personal details to people you don’t know. If you receive a call from someone who claims to be from your bank or any other organisation, don’t give them your details. Call the organisation in question to check it is really them calling. Never click on a link or call a phone number in an email — use a phone directory to look up the correct number.
  • Check your bank and superannuation statements. If you see any unusual transactions, contact your bank, credit card provider or super fund immediately.

Tips to protect your computer and mobile phone include:

  •  Always type the website address into your browser. Don’t click on a link in an email or open emails requiring you to enter your personal information. They could be scams.
  • Disable pop-ups on your browser. People can use pop-ups to install programs on your computer that “spy” on you or record your key strokes. This is how they find out passwords to your bank account and other accounts. Most internet browsers let you block pop-ups.
  • Make your passwords hard to guess. Use a combination of numbers and letters and change your passwords frequently.
  • Install up-to-date anti-virus software. It will automatically prevent, detect and remove any suspicious programs from your computer or mobile device.
  • Enable security settings on your mobile device. Turn off Wi-Fi, Bluetooth and GPS when not in use.
  • Never use public computers for banking or payments. If you use a computer at a library or internet café to look up your bank account or do online shopping, your account details will be stored on the computer. You do not want your important online banking details to get into the hands of others.

And of course the old adage remains as important as ever: If something is too good to be true, it usually is.

What are your thoughts? Start or continue the conversation here!

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses every month – Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or call us 0407 361 596

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Masterclass SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

Masterclass SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

SMSF – What if a Trustee moves overseas and has a Self-Managed Super fund (SMSF)

If you have set decided to move overseas and you are a Trustee because you have a Self-Managed Super Fund (SMSF), what are the issues you need to consider?

When you have an SMSF, one of the complying requirements is Australian Residency

I have highlighted key parts below, but in Summary, an essential part of compliance is Residency, where management and control (ordinarily in Australia) is temporarily overseas for up to 2 years. It will not pass if management is Permanently outside Aust. (see further below).

This is what the ATO (Australian Tax Office, the Regulator of SMSF) website currently explains (I have highlighted key parts)

Check the residency of your fund

To be a complying super fund and receive tax concessions, your fund needs to be a resident regulated super fund at all times during the income year. This means your fund needs to meet the definition of an ‘Australian superannuation fund’ for tax purposes.

If your fund is a non-complying fund, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate.

If a member moves or travels overseas for an extended period, this may affect the residency status of the fund.

Your fund needs to meet certain conditions to be an ‘Australian superannuation fund’. For more information, refer to Residency of self-managed super funds. (see next)

Last modified: 17 Apr 2014QC 23312

(Above From – https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up-an-SMSF/Check-the-residency-of-your-fund/ detailed next…)

Residency of self-managed super funds (from link above)

For your self-managed super fund (SMSF) to receive tax concessions, it must be a complying super fund. To be a complying super fund, your SMSF must satisfy the residency test.

To satisfy the residency test, your SMSF must meet the definition of an Australian superannuation fund.

What is the residency test?

As a trustee, you must make sure your fund meets all conditions of the residency test to ensure it qualifies as an Australian superannuation fund.

The residency test has three elements:

    1. Your fund was established in Australia, or at least one of the fund’s assets is located in Australia;
    2. The central management and control of your fund is ordinarily in Australia;
    3. Your fund must have no active members or have active members who are Australian residents and who hold at least 50% of:
      • The total market value of your fund’s assets attributable to super interests; or
      • The sum of the amounts that would be payable to active members if they decided to leave the fund.

When is a fund established in Australia?

An SMSF is established in Australia when you are paid and accept the initial contribution to establish the fund in Australia.

What is ‘the central management and control’ of the fund?

‘The central management and control’ of your SMSF is the strategic and high level decision-making processes of the fund. These include carrying out duties like:

    • Formulating the investment strategy of the fund;
    • Reviewing the performance of the fund’s investments.

These duties are generally performed by you as the trustee of the fund.

What does ‘ordinarily in Australia’ mean?

We accept the central management and control of your fund is ordinarily in Australia if the SMSF’s strategic decisions are regularly made, and high level duties and activities are performed, in Australia.

In some situations, a fund’s central management and control may be outside Australia for a period of time. In general, your fund will still meet the ‘ordinarily’ requirement if its central management and control is temporarily outside Australia for up to two years. If the central management and control of the fund is permanently outside Australia for any period, you will not meet this requirement.

Whether the central management and control of your fund is ordinarily in Australia is based on the fund’s circumstances at that time.

When is a member an active member?

A member is considered to be an active member of your SMSF if:

    • They are a contributor to the fund;
    • Contributions to the fund have been made on their behalf.

However, a member is not an active member if contributions have been made to the fund on their behalf and:

    • They are not a resident of Australia;
    • They have ceased to be a contributor;
    • The contributions made on their behalf after they ceased to be an Australian resident were made for the time they were an Australian resident.

What happens if your SMSF doesn’t satisfy the residency rules?

Your SMSF must satisfy the residency rules at all times to be eligible for the tax concessions available to complying super funds. There are tax consequences if your fund becomes non-complying.

If your fund stops being a complying fund because it does not satisfy the residency rules and therefore cannot meet the definition of an Australian superannuation fund, an amount equal to the market value of the fund’s total assets (less any contributions the fund has received that are not part of the taxable income of the fund) will be included in the fund’s assessable income. This amount is taxed at the highest marginal tax rate.

For every year that the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.

Here are some ways to avoid these consequences:

    • If members are planning on going overseas, the SMSF trustees should seek professional advice to ensure they maintain the residency status of their SMSF;
    • *********If an SMSF fails the residency test the trustees should rollover their funds to a resident regulated super fund and wind up the SMSF. Failure to do this leaves us with no option other than to make the fund non-complying;
    • If a non-resident member of an SMSF wishes to make or receive contributions they should consider making or receiving these outside of their SMSF, for example to a retail or industry super fund. They can then rollover the contributions to their SMSF when they return as an Australian resident for tax purposes.

For more information on super fund residency rules, see Taxation Ruling TR 2008/09.

(Above From HERE)

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596, Paul.

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CASE STUDY – Pooling super with brother-in-law in Self-Managed Super and having flexibility and Centrelink assistance!

CASE STUDY – Pooling super with Brother-in-Law in Self-Managed Super and having flexibility and Centrelink assistance!

Pooling super with Brother-in-Law in Self-Managed Super and having flexibility and Centrelink assistance!

WHERE they were at – Rob and Glen were related by family but that was not of the unfriendly kind – far from it! They were mates in many ways, and since they only had moderate amounts in their super, talking with the advisor raised the desire to combine in a Self-Managed Super Fund (SMSF). They also liked that since they had been helped in the past and could continue to benefit from our advisor, Jim Brownlee’s many years’ experience with Centrelink (especially with some of Rob’s particular issues) employing our service was a sure thing.

Our advisor, Jim Brownlee, went through a fact-find to understand their financial situation better and Jim explained how self-managed super worked and what was involved. He emphasised the compliance responsibilities, but that most would be managed for them by the SuperBenefit service, so they didn’t need to worry.

What they WANTED to have – Rob and Glen both had worked hard, but super only arrived late in their working life, so they needed to look to invest but also have access with emergencies, or to help the family.

They didn’t plan on big trips, just a local trip or 2 occasionally, but health would determine what could be possible. They had paid off their houses.

What it will COST The planner explained that they should live on the Centrelink payments, and the SMSF would be a  bonus and a back-up. They lived comfortably currently but not extravagantly and dinner out was rare. A local trip would be a maybe. They would just run the 1 car, estimated at annual running costs of $4-5,000 each per year, as they expected running around with grandchildren on occasions!

What they would NEEDTo live on Centrelink and only use the super when and if needed. Jim and the stock broker would aim to grow their money to cover the minimum pension they could draw to supplement the government pension.

What to do NOW I came and met Rob & Glen and explained the administration and compliance requirements relating to SMSF. I explained how SMSF was set up and what we would do – obtain the Trust Deed, AND, TFN and bank account set up ready for them to sign as owners and members. They also liked that we would support them with any questions, and that other investment ideas could be discussed with the CPA and their auditor – but they knew that was unlikely! They just wanted a simple but reasonable return. Another part of the service they liked was that although workshops and one-on-one mentoring was available, they just need a simple life and to continue to be under the wing of Jim as had been the case for many decades!

They now had the components in place -

StrategyTo take control and their pool super, and contribute extra, and learn more when they had time

Structure To set up an SMSF together,

Support With resources and all compliances taken care of by SuperBenefit, and other professionals, they could learn more about investment in property & shares as time allowed later. They now felt in control and it felt very manageable to them. They could see a well-planned future and had a team to support them.

Note – This is a simplified summary of one client – we recommend asking for a FREE consultation and/or seeking further professional advice with our or your advisor.

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses every month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see 1 SMSF – FREE Seminars or call us 0407 361 596

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