Category of Superannuation Fund

Superannuation Industry (Supervision) Act 1992 (SIS Act) defines superannuation fund as a scheme for the payment of superannuation benefits upon retirement or death.

Categories of the superannuation funds are as follows:-

1. Corporate or employer-sponsored funds
2. Industry funds
3. Retail funds and public offer funds
4. Public sector funds
5. Small APRA funds (SAFs) – regulated by APRA
6. Self Managed Superannuation Funds (SMSFs) – regulated by ATO

SMSF Estate Planning-Part 2

The superannuation benefits of a deceased member may consist of tax free, taxable and untaxed element.

As mentioned earlier in SMSF Estate Planning-Part 1, payments of benefits on member’s death can made in the form of lump sum or pensions. We will discuss more about the tax implications on paying the death benefits in lump sum and pensions.

Lump Sum

Lump sum benefit can be paid directly by the SMSF to SIS dependants, or paid via the legal estate to anyone.

Tax Component	Paid to Dependants	Paid to non-dependants
Tax Free component	No tax	No tax
Taxed element	No tax	15% + Medicare Levy
Untaxed element	No tax	30% + Medicare Levy

Untaxed components are taxed differently and generally arise where a SMSF has life insurance for a member.

Pensions/Income streams

SMSF Estate Planning–Part 1

There are various options to look after your dependants and others from a SMSF on a member’s death:-

1. Trustee may pay a lump sum, by way of cash or assets, from member’s superannuation benefits in the fund to a dependant or the trustee of member’s legal estate (if this is not possible, then a lump sum can be paid to a non dependant)
2. Trustee may pay a pension from the fund from member’s superannuation benefits to a dependant. There are restrictions on paying pensions to child dependants over age 18 unless they are student under age 25 or a child who is disabled.
3. A reversion of an existing pension which results in the continuation of the pension in the name of the reversionary beneficiary provided they are dependants – again subject to the child limitation above.

For taxation purpose, dependants are:-

• a spouse or former spouse
• a child of the person who is under the age of 18
• a person who is financially dependant. This may include a parent who meets, in whole or part a child’s mortgage repayments.
• A person who has an ‘inter-dependent relationship’ with the member.

Flood Levy

Flood levy is imposed only for financial year 2012 to provide assistance to affected communities by the natural disaster. This is a once-off levy. There will be no flood levy in financial year 2013 as recently announced in the 2012-2013 federal budget.

You may be exempt from flood levy if you:-

• have taxable income of $50,000 or less; or
• were affected by a declared natural disaster (see below).

The flood levy rate is as follows:-

Taxable Income	Flood Levy
<$50,000	Nil
$50,001 – $100,000	0.5% of each dollar above $50,000
> $100,001	$250 + 1% of each dollar above $100,000

Net Medical Expenses tax offset

The high income earners are facing the increased premium to the private health insurance now they will face a lower tax offset available to them under the net medical expenses.

For the 2011 year, the tax offset is 20% of the net medical expenses in excess of $2000

For the 2012 year, the tax offset is 20% of the net medical expenses in excess of $2060

Effective from 1 July 2012, the tax offset will be different for those whose adjusted income is above the Medicare Levy Surcharge threshold ($84,000 for singles and $168,000 for families for 2012-2013 year) and below.

For those above the threshold, the tax offset will be 10% of the $5000. People below the threshold will be unaffected.

Federal Budget 2012-2013, Superannuation

As previously mentioned on the post regarding Federal Budget 2012-2013, the changes to the superannuation which may be relevant to those who are contributing are:-

• Concessional superannuation contribution is capped at $25,000 per annum, regardless of the age.

The government previously proposed that the concessional contribution cap for individuals aged 50 and over is $50,000, if their superannuation balance is below $500,000. This will not go forward for the year ending 30 June 2013 and 30 June 2014. Rather this application of this proposal is proposed to commence from 1 July 2014.

So, it may be best to contribute to your superannuation up to the cap and claim tax deduction this year, provided:-

• you are eligible to claim deduction (satisfy the 10% income test)
• you have spare cash
• you will benefit from the tax deduction

It may be best to discuss with your accountants or SMSF administrators if contributing up to the cap may be the best strategy for you.

• Tax concession for those earning ‘income’ above $300,000 will be reduced from 30% to 15% excluding Medicare Levy

Effective from 1 July 2012, those with ‘income’ above $300,000 will pay more tax on the concessional superannuation contribution received. Note that the tax is pay by your superannuation fund.

For this purpose, the ‘income’ is calculated as follows:-

Taxable Income + Concessional contribution (e.g. Super Guarantee, salary sacrificed contribution) + Adjusted Fringe Benefit + Net Investment Loss + Target foreign income & tax-free government pension & benefit – child support

For individuals whose ‘income’ excluding the concessional contribution is less than $300,000, but after adding the concessional contribution will get them above the $300,000 threshold, the reduced tax concession will only apply to part of the contributions above the threshold.

E.g. if your ‘income’ excluding the concessional contribution is $280,000 with concessional contribution of $25,000, then your concessional superannuation of $20,000 will be taxed at 15%, while the excess of $5,000 will be taxed at 30%.

‘Income’ pre concessional contribution	$280,000
Concessional Superannuation	$25,000
Total ‘income’	$305,000
Threshold	$300,000
Excess	$5,000

For SMSF auditors, note that the government proposed that additional funding to ASIC and ATO for developing exams for SMSF auditors, deregistering non-complaint auditors, and compliance and competence checks.

Income Tax–Resident Individual

For Australian tax resident, the income tax rates are as follows. Note that the rates do not include Medicare Levy, Medicare Levy Surcharge and Flood levy.

2012-2013

Taxable Income	Tax Payable
0 – $18,200	Nil
$18,201 – $37,000	19% for each dollar above $18,200
$37,001 – $80,000	$3,572 + 32.5% for each dollar above $37,000
$80,001 – $180,000	$17,547 + 37% for each dollar above $80,000
> $180,000	$54,547 + 45% for each dollar above $180,000

2011-2012

Taxable Income	Tax Payable
0 – $6,000	Nil
$6,001 – $37,000	15% for each dollar above $6,000
$37,001 – $80,000	$4,650 + 30% for each dollar above $37,000
$80,001 – $180,000	$17,550 + 37% for each dollar above $80,000
> $180,000	$54,550 + 45% for each dollar above $180,000

2010-2011

Taxable Income	Tax Payable
0 – $6,000	Nil
$6,001 – $37,000	15% for each dollar above $6,000
$37,001 – $80,000	$4,650 + 30% for each dollar above $37,000
$80,001 – $180,000	$17,550 + 37% for each dollar above $80,000
> $180,000	$54,550 + 45% for each dollar above $180,000

Federal Budget 2012-2013

The Australian Government has recently held the federal budget 2012-2013 on 8 May 2012. As promised, the Government is on its track to budget surplus. However, the people are still questioning if budget surplus is realistic.

Rather than touching on whether the budget surplus is attainable, rather we will have a look at the outcome of the Federal Budget 2012-2013 and how it may affect people.

The following is a list of several topics which were covered in the Federal Budget 2012-2013. For a complete details, you may visit budget.gov.au/2012-13/

Corporate Trustee vs Individual Trustee

If you have decided that SMSF is right for you. The next step you need to consider is whether corporate trustee or individual trustee is better for you.

Hello!

This page is intended to provide information to people from all walks of life about ‘Taxes” in Australia. ‘Tax” is my daily food as this is what I do for living. I have been working in this industry for a number of years and would like to assist people in understanding our tax. The firm I work for is located in the heart of Melbourne. If you ever need an accountant, tax agent, ASIC agent, feel free to come to our firm, we will be more than happy to assist you. Happy reading.