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2. Contents. Record KeepingContribution SplittingTransition to RetirementNew Pension Factors. 3. Record Keeping. Following must be kept for 10 yearsMinutesChanges of trusteesConsents of directorsConsents of individual trusteess71E elections. 4. Record Keeping. Following records must be kept
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1. 1 Latest Changes in Superannuation – a DIY Perspective Presented by - BLM Accounting Services
6th February 2006
2. 2 Contents Record Keeping
Contribution Splitting
Transition to Retirement
New Pension Factors
3. 3 Record Keeping Following must be kept for 10 years
Minutes
Changes of trustees
Consents of directors
Consents of individual trustees
s71E elections
4. 4 Record Keeping Following records must be kept for 5 years
Financial statements
Tax returns
Accounting records
Documents supporting above
5. 5 Record Keeping What decisions need to be minuted?
Contributions
Benefit payments
Investment decisions
If in accordance with investment strategy an annual summary
If not in accordance with strategy (remember to update strategy)
6. 6 Contribution Splitting Overview
Splitting allows eligible persons to transfer superannuation contributions to their spouse
7. 7 Who can split contributions?
Between spouses
(in the “traditional” sense)
Married
De facto
Same sex couples excluded
8. 8 Spouse must be below preservation age or less than 65 and not permanently retired
At discretion of superannuation fund (previously to be mandatory), will need to make sure trust deed allows splitting
9. 9 Preservation Ages
10. 10 What contributions can be split?
100% of undeducted contributions
85% of deductible contributions
11. 11 When can contributions be split? A splitting application can be made for contributions made to a fund after 1 January 2006
Application can be made after 1 July each year for all contributions in previous year
Can only make one application per year
12. 12 If you want to claim a self-employed deduction (s82AAT) you must give the notice to claim the deduction before the splitting application
You must make the application to split before rolling the contributions to another fund or commencing a pension
13. 13 Advantages of splitting
Gives access to two RBL’s and two low rate Post June 83 thresholds
Note thresholds
2005 $123,808
2006 $129,751
Equalise superannuation balances so both spouses have the same taxable income in retirement
14. 14 Example 1
If you have maxed out your RBL you now may be able to start salary sacrificing again
15. 15
Bob, retired from the public service but now working as a consultant
Has previously maxed out his RBL
His wife has no accumulated super
Needs $45,240 per year for living expenses
16. 16 No salary sacrifice contributions
CSS Pension $ 60,000
Consulting income $ 80,000
Total $140,000
Tax on taxable income $ 50,610
Net income after tax $ 89,390
Undeducted contribution $ 44,150
Contributions tax
Net super after tax $ 44,150
Total tax $ 50,610
Net income after tax & super $ 45,240
17. 17 Salary sacrifice maximum
Now Previous
CSS Pension $60,000 $ 60,000
Consulting income $Nil $ 80,000
Total $60,000 $140,000
Tax on taxable income $14,760 $50,610
Net income after tax $45,240 $89,390
Super contribution $80,000 $44,150
Contributions tax $12,000 $Nil
Net super after tax $68,000 $44,150
Total tax $26,760 $50,610
Tax saved $23,850
Additional super $23,850
18. 18 Example 2
Equalise taxable incomes in retirement
19. 19 Leanne salary sacrificing $60,000 per year
Currently has $300,000 in accumulated superannuation
Husband Dave has no super
Will retire in 5 years at age 60
Assume fund earns 8%
20. 20 No splitting
Accumulated super Leanne $751,963
Accumulated super Dave $Nil
Minimum pension Leanne $38,962
Tax on taxable income $8,133
Pension offset $5,844
Tax payable $2,289
Net income after tax $36,673
Joint net income $36,673
21. 21 Split 100%
Accumulated super Leanne $440,798
Accumulated super Dave $311,165
Minimum pension Leanne $22,839
Tax on taxable income $3,054
Pension offset $3,054
Tax payable $Nil
Net income after tax $22,839
Minimum pension Rod $16,123
Tax on taxable income $1,760
Pension offset $1,760
Tax payable $Nil
Net income after tax $16,123
Joint net income $38,962
Increase in income $2,289
22. 22 Transition to Retirement Overview
Transition to retirement allows eligible persons to access their superannuation in the form of a pension while still working
23. 23 Who can commence a transition to retirement pension?
People that have reached preservation age (refer preservation age table at slide 9)
The superannuation fund trust deed must permit payment of transition to retirement pensions
24. 24 What type of pension can be commenced?
Superannuation can be accessed in the form of a non-commutable pension
Commutable means able to be converted to a lump sum
25. 25 Uses existing pension types
Allocated pensions
Market-linked income streams
Adds extra conditions in the case of an allocated pension – a market linked pension can generally not be commuted anyway
26. 26 Can only access a lump sum according to normal superannuation preservation rules
Unrestricted unpreserved monies
Satisfying a conditions of release
Permanently retiring
Reaching age 65
27. 27 When can a transition to retirement pension be commenced?
From 1 July 2005
28. 28 Why commence a transition to retirement pension?
Replacing working income with pension income can be tax effective
29. 29 Example Don earning $70,000 per year in wages
Age 55
$500,000 in accumulated super
Assume fund earns 8%
30. 30 No Pension
Wages $70,000
Tax on taxable income $17,910
Net income after tax $52,090
Super balance at year end $540,000
Super balance after 5 years $734,664
31. 31 Transition to retirement pension
Wages $42,695
Minimum allocated pension $23,697
Taxable income $66,392
Tax on taxable income $17,856
Pension offset $3,555
Tax payable $14,302
Net income after tax $52,090
Salary sacrifice $27,305
Contributions tax $4,096
Net contribution $23,209
Super balance at year end $549,954
Increase in super $9,954
Super balance after 5 years $798,653
Increase in super $63,989
32. 32
The after tax value of the contribution replaces the pension payment. The benefit in this example comes from the accumulated superannuation moving into pension phase
When a fund is in pension phase the tax rate drops from 15% to 0%
33. 33 New pension factors
Changes made to the available terms and payment limits for market linked income streams
New minimums and maximums for allocated pensions
34. 34 Market-linked income streams Term of the pension
The allowable term of a market linked income stream can now be based on either your life expectancy if you were to live to 100 or any term in between or in the case of reversionary pensions your spouses life expectancy if they were to live to 100 or any term in between.
35. 35 Market-linked income streams
Previously the term was restricted to your life expectancy or any term plus five years or in the case of reversionary pensions your spouses life expectancy or any term plus five years.
36. 36 Market-linked income streams Payment amount
Previously payment was fixed and was calculated by dividing the account balance by the relevant factor given the number of years remaining in the pension term
Now can adjust the calculated figure up or down by 10%
37. 37 Allocated pensions New allocated pension factors (see attached table) will apply to new pensions commenced after 1 January 2006
Pensions commenced before 1 January 2006 will continue to use the old factors
The new factors decrease both the minimum and maximum payments by approximately 5%
38. 38 Allocated pensions
Transitional period
Pensions commenced between 1 January 2006 and 30 June 2006 can elect to use either the old or new factors
39. 39 Allocated pensions
If you already have an allocated pension but want to access the new factors you can commute the pension and start again
The undeducted purchase price will be recalculated if you do this
40. 40 Example Bill commenced an allocated pension at age 55 on 1 July 2000 with $500,000
Undeducted contributions of $100,000
On 1 July 2006 Bill decides to commute the allocated pension to take use of the new factors
Bill’s current account balance is $550,000
41. 41 Old Pension
Minimum pension $31,609
Deductible amount $4,129
Taxable income $27,480
Tax on taxable income $4,516
Pension offset $4,122
Tax payable $394
Net income after tax $31,215
42. 42 New Pension
Minimum pension $29,101
Deductible amount $3,610
Taxable income $25,491
Tax on taxable income $3,890
Pension offset $3,824
Tax payable $66
Net income after tax $29,035
43. 43 Projected Balances