Superannuation is a highly tax effective way of investing to accumulate wealth for retirement. Superannuation is not an investment, it is a taxation and withdrawal structure within which one invests. It has significant advantages and should be the first item considered in formulating your financial strategy. The disadvantage of investing through superannuation is that, with exemption of Transition to Retirement (TTR) pensions, funds are unavailable until retirement, death or disability.
Superannuation can be used to fund insurance premiums for life, total and permanent disability (TPD) and income protection insurance. Salary sacrifice to superannuation is one of the first things we will discuss with a new client.
Common superannuation advice we provide includes:
- Choice of fund,
- Investment choice,
- Salary sacrifice,
- Insurance types and benefit amounts to fund through superannuation,
- Non concessional (after tax) contributions,
- Constitutionally protected funds like GESB’s Gold State and West State,
- Whether to open a new SMSF (only in very limited circumstances do we advise this) and whether to close an existing SMSF,
- Contribution splitting,
- Pension commencement and
- Superannuation legislation changes.
Investing through superannuation conveys a number of advantages, namely:
- income earned by a superannuation fund suffers tax at 15% or, if applicable to a pension, zero, which contrasts with normal marginal tax rates for individual investments,
- capital gains earned by a superannuation fund suffer tax at 10% or, if applicable to a pension, zero, which contrasts with half of the normal marginal tax rates for individual investments,
- employer/personal contributions to a superannuation fund suffer tax at 15% compared with the marginal tax rates that would apply if the funds contributed were paid as salary or wages and
- benefits paid after age 60 or to a financial dependent on earlier death are tax free and other benefits are concessionally taxed.
Concessional contributions are tax effective for individuals on a marginal tax rate greater than 15%. The tax efficacy increases with one’s marginal tax rate and as retirement approaches. For member’s of a couple we can advise on the optimal arrangement of salary sacrifice.