Provision Newsletter

If you’re moving out of the family home for the first time, here’s what you need to think about.

So the time has come to think about moving out of the family home.

It’s a big step…take a second to imagine what it will feel like. Playing your music as loud as you want. House guests who can come and go as you please. Your very own remote control.

But hang on…there’s the washing to consider. And cooking dinner every night. And the bills to pay.

Moving out of home for the first time is exciting. But with freedom comes responsibility. You’re on the hook for a lot of stuff your parents might have been covering, from your nightly entertainment on the goggle box to simply paying for the water that comes out of the taps.

And as well as going solo with all the drudge work like cooking, washing and cleaning, the financial implications of independent living can come as a bit of a shock.

You might be surprised at the number of essentials your parents subsidised over the years. It’s not just keeping them sweet with $50 towards the weekly groceries. It’s everything from the electricity bill to home repairs to running a car.

Checklist when you’re moving out of your parents’ home

If you’re looking to fly the nest, here’s a quick checklist to help you get to grips with life in the big wide world.

1. You might need to land your first full-time job.

To secure an interview, it could be a good idea to review your resume (CV) to make sure it accurately reflects and presents your experience and potential. Check out this helpful guide to grabbing the reader’s attention in six seconds. And as always, be sensible with social media and don’t upload anything that is going to cruel your chances with future employers. Once you’re at the interview you’d be amazed at how much difference the simple things make.

• Arrive with plenty of time to sit down and prepare for what you’re going to say.

• Add some colour to what you plan to wear to stand out—but not too much so you’re over-dressing.

• Prepare a few answers to the most important topics as interviewers often repeat the same question1.

2. You might need to find your first apartment.

If you’re looking to rent, make sure you read the small print of your contract so that you know your rights and obligations.

• How much notice does your landlord need to give to turf you out?

• And how much notice do you need to give if you want to move on?

• Have you met your prospective housemates if you’re looking at a shared house?

• What are your rights – will the landlord cover repairs and maintenance?

• Can you move your pet cat in or redo the bedroom colour scheme?

• What’s the process for paying the rent and what happens if you’re late?

3. You might need to furnish your pad.

Maybe your parents or other family members are keen to get rid of some old furniture. Alternatively, it’s amazing what you can find on eBay and Gumtree at knockdown prices. It doesn’t need to be in mint condition…you’re furnishing your first pad, not auditioning for The Block.

4. You might need to set up a broadband contract.

Until now you might have benefited from your parents’ telco setup. But now you might need to open your own home internet and telco account for the first time. While a landline might be a bit old school, super-fast broadband these days is seen as a necessity and doesn’t always come cheap. Try shopping around and seeing if you can bundle your broadband with your existing mobile phone plan. And it doesn’t stop at broadband. You might need to work out if Netflix, Stan or Foxtel is a necessity or a luxury you can live without…or share the costs with your housemates or partner.

5. You might need to own a car for the first time.

It’s great if you can commute to work by public transport but not everyone is near a train station, a bus stop or a bike path. The reality is that you may need to get around in your own car. If you’re buying a car, make sure the vehicle is roadworthy so you don’t have any nasty surprises. You can always negotiate on price or walk away so don’t feel rushed into buying a lemon. And running a car doesn’t come cheap. Rego, insurance, fuel, repairs, maintenance…it all needs to be paid for so make sure you factor it into your budget.

6. You might need to connect and pay for utilities.

It could depend on your rental contract but you may have to cover utilities like water, gas and electricity – all the boring stuff but kinda necessary for a functioning household. In your parents’ day, there was generally one option for utilities…it wasn’t the Soviet Union but it was close. These days there are plenty of plans out there so there’s no excuse for not shopping around for the best deal.

7. You might need to budget for groceries for the first time.

Even if you’ve been helping the olds with the weekly shopping, it could come as a shock to cover your entire grocery bill for the first time. Look out for specials at the supermarket and stock up on staples when they’re cheap. You might want to think about cutting down on takeaways and having friends round to eat in rather than eating out.

8. You might need to think about how much you spend, how much you save and even how much you invest.

Now you’ve moved out of the parents’ home, there’s probably even less excuse to blow your monthly savings on a round of cocktails at the local dive bar. But flying solo financially involves a bit more than just avoiding excess. It sounds basic, but if you can get a handle on the three areas—what’s coming in, what’s going out and what you can save—it’s the key to developing healthy money habits throughout your working life. 

Please contact us on on |PHONE| if we can be of assistance 

Source : April 2019 

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

Your superannuation savings should be a key part of your conversation about joint finances.

Picture the scene.

You’ve moved past the honeymoon period of a new relationship and you think this could finally be the one.

You’re starting to think about the medium-term future and setting up your lives together.

So you’re at your favourite restaurant discussing joint finances when your partner drops a bombshell by revealing they hardly have any superannuation saved up.

Time to smash up the breadsticks, pour your glass of wine over them and storm out never to return?

Probably not. Ditching the love of your life for a lack of super could be a slight over-reaction. After all, there could be a number of entirely legitimate reasons their super is a bit low.

• They could have been out of the paid workforce studying or volunteering for an extended period.

• They could have been self-employed for a while and not got around to topping up their super.

• They could have missed payments from a previous employer through no fault of their own.

But while a lack of super is probably not a very good reason to break up, it could give an indication of your partner’s overall attitude towards money.

The last thing you want is for any super secrets to fester. So even if one or both of you haven’t given super much thought up until now, if you’re getting serious it should be an important part of your discussion on joint finances.

With employer and salary sacrificed contributions (up to set limits) typically taxed at 15%, investment earnings taxed at a maximum rate of 15% and tax-free withdrawals once you’re aged 60 or over, super can be an effective tax-friendly way to save and invest your money compared with most people’s marginal tax rate.

7 questions to ask your partner about superannuation

Here are some of the super-related questions you might want to ask yourselves as part of your conversation on joint finances.

1. Should you think about putting money into super to save for your first home together?

If you’re looking at setting up home together and you haven’t bought a property before, you could be eligible for the First Home Super Saver Scheme. You can contribute up to $30,000 each ($15,000 in any one financial year) into your tax-friendly super account and then withdraw it, along with a set earning amount, at a later date to pay for a deposit.

2. Should you think about contribution splitting with your partner?

If you’re looking at boosting super for a spouse with a low super balance, a pretty easy way to get started is contribution splitting. If you’re living together in a de facto or married relationship, this stategy enables the spouse with a higher super balance to effectively transfer amounts of concessional contributions (inclusing super guarantee payments) that they have received into the account of the spouse with a low super balance on an annual basis. And better still it won’t impact either partner’s cash flow.

3. Should you think about making contributions to your partner’s super and claiming a tax offset?

If you’re living together—whether married or de facto—you can potentially benefit from the spouse contributions tax offset. This is where the higher-earning partner contributes towards the lower-earning partner’s super using after-tax dollars and claim a tax offset of up to $540. Of course, you’ll probably want to be in a serious long-term relationship before you consider this, but it’s potentially a way of reducing your tax bill and boosting your partner’s super at the same time.

4. Should you think about taking advantage of government co-contributions?

If one of you is a low-to-middle income earner and they make an after-tax contribution to their super fund, they might be eligible for a government co-contribution of up to $500.

5. Should you think about contributing more into your super?

If you’re thinking long term, super can be an effective tax-friendly vehicle to save for retirement. The current limit on concessional contributions is $25,000 a year (including super guarantee payments from your employer) so unless you’re a very high earner there could be more leeway to top up your super and save on tax each year.

And there’s also now an opportunity to claim a tax deduction for personal contributions made to super (regardless of whether you’re employed or self-employed). These contributions would be concessional contributions, taxed at 15% on entry, and would enable the person contributing to claim a tax deduction up to the balance of their remaining $25,000 concessional contribution cap.

Plus you can also put up to $100,000 a year (or $300,000 over a three-year period under bring-forward rules) in non-concessional contributions.

6. Should you think about changing your investment options within super?

Your super savings are likely to become your biggest pot of money outside the family home. So it’s important to get up to speed with how your money is being invested. Depending on your super fund, you can usually choose between a basic set of options ranging from conservative (less risky assets like cash and bonds that have less potential for growth) all the way through to high growth (more risky assets like shares and property that have more potential for growth).

Your appetite for risk can change as you get older and your life changes so it’s important to revisit your options regularly to make sure they still match your circumstances. Some super funds offer a MySuper lifecycle investment strategy that automatically adjusts your investment options from more growth assets when you’re younger to more defensive assets when you’re older.

7. Should you think about making sure your partner receives your super benefits?

It’s important to make sure the right people receive your super if you die. So if you want to include your partner you’ll need to make the necessary arrangements with your super fund, nominate your beneficiaries and ensure your will is up to date.

For further assistance on this topic please contact us on |PHONE|.

Source : AMP May 2019 

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person

Surprisingly weak Australian inflation has led to expectations the Reserve Bank will soon cut rates. But what’s driving low inflation? Is it really that bad? Why not just lower the inflation target? Will rate cuts help?And what does it mean for investors?

Inflation surprises on the downside again

Australian inflation as measured by the CPI was flat in the March quarter and up just 1.3% over the last year. Sure, the zero outcome in the quarter was partly due to a nearly 9% decline in petrol prices and they have since rebounded to some degree. And high-profile items like food, health and education are up 2.3%, 3.1% and 2.9% respectively from a year ago. But against this price weakness is widespread in areas like clothing, rents, household equipment & services and communications.

Source: ABS, AMP Capital

But why the focus on “underlying inflation”?

The increase in the CPI is the best measure of changes in the cost of living. But it can be distorted in the short term by often volatile moves in some items that are due to things like world oil prices, the weather and government administered prices that are unrelated to supply and demand pressures in the economy. So, economists and policy makers like the RBA focus on what is called underlying inflation to get a handle on underlying price pressures in the economy so as not to jump at shadows. There are various ways of measuring this ranging from excluding items like food and energy as in the US version of core inflation, to excluding items whose prices are largely government administered to statistical measures that exclude items that have volatile moves in each quarter (as with the trimmed mean and weighed median measures of inflation). Right now they all show the same thing ie that underlying inflation is low ranging between 1.2% to 1.6% year on year. The average of the trimmed mean and weighted median measures is shown in the previous chart and is averaging 1.4%. The common criticism of underlying inflation that “if you exclude everything there is no inflation” is funny but irrelevant. The point is that both headline and underlying inflation are below the RBA’s 2-3% target and this has been the case for almost four years now.

What is driving low inflation?

The weakness in inflation is evident globally. Using the US definition, core (ex food & energy) inflation is just 1.8% in the US, 0.8% in the Eurozone, 0.4% in Japan and 1.8% in China.

Sources: Bloomberg, AMP Capital

Several factors have driven the ongoing softness in inflation including: the sub-par recovery in global demand since the GFC which has left high levels of spare capacity in product markets and underutilisation of labour; intense competition exacerbated by technological innovation (online sales, Uber, Airbnb, etc); and softish commodity prices. All of which has meant that companies lack pricing power & workers lack bargaining power.

Why not just lower the inflation target?

Some suggest that the RBA should just lower its inflation target. This reminds me of a similar argument back in 2007-08, when inflation had pushed above 4%, that the RBA should just raise its inflation target. Such arguments are nonsense. First, the whole point of having an inflation target is to anchor inflation expectations. If the target is just raised or lowered each time it’s breached for a while then those expectations – which workers use to form wage demands and companies use in setting wages and prices – will simply move up or down depending on which way inflation and the target moves. And so inflationary or deflationary shocks will turn into permanent shifts up or down in inflation. Inflation targeting would just lose all credibility.

Second, there are problems with allowing too-low inflation. Most central bank inflation targets are set at 2% or so because statistical measures of inflation tend to overstate actual inflation by 1-2% because statisticians have trouble actually adjusting for quality improvements and so some measured price rises often reflect quality improvements. In other words, 1.3% inflation as currently measured could mean we are actually in deflation. And there are problems with deflation.

What’s wrong with falling prices (deflation) anyway?

Deflation refers to persistent and generalised price falls. It occurred in the 1800s, 1930s and the last 20 years in Japan. Most people would see falling prices as good because they can buy more with their income. However, deflation can be good or bad. In the period 1870-1895 in the US, deflation occurred against a background of strong growth, reflecting rapid technological innovation. This can be called “good deflation”. However, falling prices are not good if they are associated with falling wages, rising unemployment, falling asset prices and rising real debt burdens. For example, in the 1930s and more recently in Japan. This is “bad deflation”. Given high debt levels, sustained deflation could cause big problems. Falling wages and prices would make it harder to service debts. Lower nominal growth will make high public debt levels harder to pay off. And when prices fall people put off decisions to spend and invest, which could threaten economic growth. This could risk a debt deflation spiral of falling asset prices and falling incomes leading to rising debt burdens, increasing defaults, spurring more falls in asset prices, etc.

The problem for RBA credibility?

The problem for the RBA is that inflation has been undershooting its forecasts and the target for several years now. The longer this persists the more the RBA will lose credibility, seeing low inflation expectations become entrenched making it harder to get inflation back to target and leaving Australia vulnerable to deflation in the next economic downturn.

Source: RBA, Bloomberg, AMP Capital

Due to the slowdown in economic growth flowing partly from the housing downturn we have been looking for two rate cuts this year since last December. We had thought that the RBA would prefer to wait till after the election is out of the way before starting to move and coming fiscal stimulus from July also supports the case to wait as does the still strong labour market. However, with underlying inflation coming in much weaker than expected the RBA its arguably too risky to wait until unemployment starts to trend up. And the RBA has moved in both the 2007 and 2013 election campaigns. So, while it’s a close call our base case is now for the first rate cut to occur at the RBA’s May meeting. Failing that, then in June.

Will the banks pass on RBA rate cuts?

This has been an issue with all rate cuts since the GFC due to a rise in bank funding costs. But most cuts have been passed on largely or in full (the average pass through since the Nov 2011 cut has been 89%), notwithstanding out of cycle hikes. Short term funding costs have fallen lately pointing to a reversal of last year’s 0.1 to 0.15% mortgage rate hikes or at least the banks having little excuse not to pass on any RBA cuts in full.

But will more rate cuts help anyway?

Some worry that rate cuts won’t help as they cut the spending power of retirees and many of those with a mortgage just maintain their payments when rates fall. However, there are several points to note regarding this. First, the level of household deposits in Australia at $1.1 trillion is swamped by the level of household debt at $2.4 trillion. So the household sector is a net beneficiary of lower interest rates. Second, the responsiveness to changes in spending power for a family with a mortgage is far greater than for retirees. Third, even if many with a mortgage just let their debt get paid off faster in response to falling rates this still provides an offset to the negative wealth effect of falling house prices, reducing pressure to cut spending. Fourth, the fall in rates since 2011 has helped the economy keep growing as mining investment collapsed. And of course, RBA rate cuts help push the $A lower. So, while rate cuts may not be as potent with higher household debt levels today and tighter bank lending standards, they should provide some help.

Is the RBA out of ammo?

This is a common concern around major central banks. However, they are a long way from being unable to do anything: the Fed can reverse the 9 rate hikes seen since December 2015 and start quantitative easing again if needed; and both the ECB and Bank of Japan could expand their QE programs. The ultimate option is for central banks to provide direct financing of government spending or tax cuts using printed money. This is often referred to as “helicopter money”. Fortunately, non-traditional monetary policy has worked in the US and so at least these concerns are unlikely to need to be tested. Of course, the RBA still has plenty of scope to cut interest rates if needed (there is 150 basis points to zero) and it could still do quantitative easing if needed so it’s a long way from being out of ammo (not that we think it needs to do a lot more anyway).

Implications for investors?

There are a number of implications for investors. First, low interest rates will remain in place for some time keeping bank deposit rates unattractive. Second, given the absence of inflationary pressure, a 1994-style bond crash remains distant.

Third, the low interest rate environment means the chase for yield is likely to continue supporting commercial property, infrastructure and shares offering sustainable high dividends.

Fourth, an earlier RBA rate cut may bring forward the timing of the bottom in Australian house prices.

Finally, as can be seen in the next chart, low inflation is generally good for shares as it allows shares to trade on higher price to earnings multiples. But deflation tends to be bad for shares as it tends to go with poor growth and profits and as a result shares trade on lower PEs. The same would apply to assets like commercial property and infrastructure.

Source: Global Financial Data, Bloomberg, AMP Capital

Source: AMP Capital 29 April 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

If your other half is a stay-at-home parent, working part-time or out of work, find out how adding to their super could benefit you both financially.

If your spouse (husband, wife, de facto or same-sex partner) is a low-income earner or not working at the moment, chances are they’re accumulating little or no super at all to fund their retirement.

The good news is, if you’d like to help them by putting money into their super, you might be eligible for a tax offset, while potentially creating additional future planning opportunities for both of you.

If you want to know more, we explain how the spouse contributions tax offset works, in addition to what contributions splitting is (and how it differs).

The spouse contributions tax offset

How do you know if you’re eligible?

To be entitled to the spouse contributions tax offset:

• You must make a contribution to your spouse’s super. This is a contribution made using after-tax dollars, which you haven’t claimed as a tax deduction

• You must be married or in a de facto relationship (this includes same-sex couples)

• You must both be Australian residents

• The receiving spouse has to be under the age of 65, or if they’re between 65 and 69 they must meet work test requirements, meaning they were gainfully employed during the financial year for at least 40 hours over a period of no more than 30 consecutive days

• The receiving spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset.

What are the actual benefits?

If eligible, you can generally make a contribution to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return.

To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less.

If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible, but can still make contributions on their behalf.

Are there limits to what can be contributed?

You can’t contribute more than your partner’s non-concessional contributions cap, which is $100,000 per year for everyone. However, if your partner is under 65, they may be able to contribute up to three financial years of this cap in the one year (under bring-forward rules) which would allow a maximum contribution of up to $300,000.

Another thing to be aware of is that non-concessional contributions can’t be made once someone’s super balance reaches $1.6 million or above as at 30 June of the previous financial year. So, you won’t be able to make a spouse contribution if your partner’s balance reaches that amount.

How contributions splitting differs

Another way to increase your partner’s super is by splitting up to 85% of your concessional super contributions with them, which you either made or received in the previous financial year.

Concessional super contributions can include employer and or salary-sacrifice contributions, as well as contributions you may have claimed as a personal tax deduction.

What rules apply?

To be eligible for contributions splitting, your partner must be less than their preservation age, or between their preservation age and 65 (and not retired).

If you’re not sure what your partner’s preservation is, check the table below.

Are there limits to what can be contributed?

Amounts that you split from your super into your partner’s super will count toward your concessional contributions cap, which is $25,000 per year.

Do all super funds allow for this type of arrangement?

You’ll need to talk to your super fund to find out whether it offers contributions splitting, and it’s also worth asking whether there are any fees..

What else you and your partner should know

• If either of you exceed the super contribution caps, additional tax and penalties may apply.

• The value of your partner’s investment in super, like yours, can go up and down, so before making contributions, make sure you both understand any potential risks

• The government sets rules about when you can access your super. Generally, you can access it when you’ve reached your preservation age (which will be between the ages of 55 and 60 depending on when you were born) and you retire.

• While you can’t personally make further non-concessional contributions into your super once you have a total super balance of $1.6 million or above (as at 30 June of the previous financial year), it’s still possible to make contributions to your partner’s super (noting the caps).

Where to go for more information

Your circumstances will play a big part in what you both decide to do. And, as the rules around spouse contributions and contributions splitting can be complex, it’s a good idea to contact us on |PHONE| to ensure the approach you and your partner take is the right one.

Source: AMP 16 April 2019

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

Older Aussies can put up to $300,000 into their super using the money from the sale of their main residence, regardless of caps and restrictions that otherwise apply.

If you’re aged 65 or over and are looking to boost your retirement savings, you can make a tax-free contribution to your super of up to $300,000 using the proceeds from the sale of your main residence.

Take a look at the potential advantages, rules and other things you’ll want to be aware of.

Benefits if you make a downsizer contribution

Downsizer contributions provide a way to top up your super balance

Older Aussies, who haven’t had the chance to save enough funds for retirement, may find that tax-free downsizer contributions provide a good opportunity to top up what they’ve saved to date.

No work test or age limits apply to downsizer contributions

Usually, people aged 65 to 74 need to satisfy a work test (where you have to work 40 hours over a period of no more than 30 consecutive days) to make voluntary super contributions, while people aged 75 and over are generally ineligible to make any voluntary contributions to their super.

Annual contributions caps also do not apply

Annual concessional and non-concessional contributions caps, which are $25,000 and $100,000 a year respectively (bearing in mind there may be instances where you can also carry forward any unused amounts from previous years), don’t apply to downsizer contributions.

In fact, downsizer contributions can be made in addition to any concessional and non-concessional super contributions you may be eligible to make.

Downsizer contributions aren’t subject to the $1.6m total super balance restriction

While you can’t make non-concessional contributions into your super at all if your total super balance is $1.6 million or above as at 30 June of the previous financial year, this rule doesn’t apply to downsizer contributions.

There’s no requirement to buy a new home

If you sell your main residence and make a downsizer contribution into your super, you’re not required to buy a new home with money you might make on the sale.

Both members of a couple can take advantage

For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super.

Rules and other considerations to be aware of

1. You must be aged 65 or older to make a downsizer contribution

2. The property that’s sold needs to have been your (or your spouse’s) main place of residence at some point in time, and you need to have owned the home for at least 10 years

3. The sold property must be in Australia and excludes caravans, mobile homes and houseboats

4. A downsizer contribution must be made within 90 days of receiving the sale proceeds

5. A downsizer contribution form must be submitted to your super fund before, or at the time of making your contribution

6. You can’t have previously made a downsizer contribution to super

7. You can only transfer a maximum of $1.6 million in super savings (not including subsequent earnings) into a tax-free pension account

8. Downsizing your home may impact Age Pension eligibility. There is no special Centrelink means test exemption for making downsizer contributions

9. The costs involved in selling a property and buying another one (if that’s also on the agenda) can be considerable, so you’ll need to take into account any additional property-related costs

10. Downsizer contributions are not tax deductible.

Where to go for more information

Depending on your situation, other rules may apply, so do your research and contact us on |PHONE| about any possible implications.

Source: AMP 17 April 2019

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

How your super is taxed differs depending on your age, contributions and other factors, so it’s important to understand the different tax implications that could apply to your nest egg.

Super can be a tax-effective way of saving for retirement. Generally, money invested in super is taxed at a lower rate than your personal income tax rate. It’s structured in this way to encourage workers to save for their retirement.

The money you invest in super can be taxed at four different stages: when the money goes in (super contributions), while it’s in your super fund (investment earnings), when you withdraw it (super benefits) and when you die (super death benefits).

But the ATO’s tax treatment of your super savings is different at each of these stages. Below we explain the tax implications of each stage.

Tax on super contributions

The amount of tax you’ll pay on money going into your fund (super contributions) depends on the type of super contribution and your circumstances. Here are some of the key factors to consider.

How concessional contributions are taxed

Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return. These contributions are taxed at 15% when they are received by your super fund (up to a cap of $25,000 per year), provided you earn less than $250,000 annually.

How non-concessional contributions are taxed

Non-concessional (after tax) super contributions aren’t subject to tax as they are made with money you’ve already paid tax on (such as a regular salary payment). Types of non-concessional contributions include contributions your spouse makes to your super or personal contributions that you don’t claim as a tax deduction.

How low-income earners are taxed

If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset ensures that you don’t pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.

Those who earn between $37,697 and $52,697 during the 2018/2019 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1000 in non-concessional (after tax) contributions.

How high-income earners are taxed

If you earn more than $250,000 a year (including super), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30%; however, this is still less than your marginal income tax rate of 45%. This extra 15% is known as Division 293 tax.  Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.

If your concessional contributions exceed the concessional contributions cap of $25,000 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax.

Tax on super investment earnings

The tax that applies to super investment earnings varies depending on whether your super is in accumulation phase or pension phase.

How super investment earnings in accumulation phase are taxed

When you are still working and growing your super, the investment earnings generated by your super are taxed at a maximum rate of 15%.

But if the earnings are capital gains from an asset owned through your super for more than 12 months and then sold, the tax on the gain is reduced to 10%.

The amount of tax your fund pays may also be reduced by tax deductions or tax credits that apply to some types of investments.

How super investment earnings in pension phase are taxed

If you’re retired and drawing a retirement income stream from your super, then the investment earnings are exempt from tax, including capital gains, regardless of your age. A limit of $1.6 million (in 2018-19) applies to the amount that you can transfer to the tax-exempt retirement pension phase. This tax exemption on investment earnings also applies if you commenced the income stream due to permanent incapacity.

Tax on super withdrawals

Tax when you withdraw your super as an income stream

If you’ve reached your preservation age, have retired and are aged 60 or over – or if you are aged 65 and over regardless of your work status – you can access your super as an income stream (such as a pension or annuity) tax free. This is known as a ‘retirement phase’ income stream. If you are classified as ‘permanently incapacitated’ you may also be able to access your super as a retirement phase income stream, regardless of your age, but some tax may be payable on the income payments if you are below age 60.

If you’ve reached your preservation age and retired but are under age 60, no tax is payable on the tax-free component of your super (which is made up of your non-concessional contributions and any government co-contributions) but tax is payable on the taxable component of your super (which is made up of your concessional contributions and investment earnings). This taxable component will be added to your income and taxed at your income tax rate less a tax offset equal to 15% of the taxable portion of the payment.

Tax when you take a transition to retirement income stream

Income payments from transition to retirement (TTR) income streams (where you can draw down from your super if you’ve reached preservation age but are still working) are taxed in the same way as other retirement income streams depending on your age, as explained above. The returns on the assets supporting a TTR income stream are taxed at a maximum of 15%, the same as super investment earnings. The earnings on the TTR income stream become tax exempt as explained above when you advise the super fund of your retirement or reach age 65.

Tax when you withdraw your super as a lump sum

If you’ve reached your preservation age, have retired and are aged 60 or over, or if you are aged 65 and over regardless of your work status, you can access your super as a lump sum tax free.

If you’ve reached your preservation age and retired but are under age 60, you can withdraw up to $205,000 tax free  in 2018-19 (this is known as the low rate threshold amount). This is a lifetime limit and is adjusted annually to take into account the rising costs of living. The threshold doesn’t include the tax-free portion of your super (which is made up of your non-concessional contributions and any government co-contributions) as you can withdraw these tax free anyway. Any amount you withdraw over the low rate threshold will be taxed at 17% (including the Medicare levy) or your income tax rate, whichever is lower.

Tax when you withdraw your super in other circumstances

Under some limited circumstances, you can withdraw a lump sum from your super before preservation age. In these cases, withdrawals are taxed at 22% (including the Medicare levy) or your income tax rate, whichever is lower.

Tax on super death benefits

Different tax rates apply to super death benefits depending on whether they are paid as a lump sum, income stream (or mixture of both), and if the beneficiary (or beneficiaries) who receive your super death benefits are classified as tax dependants.

Tax dependants include a current or former spouse or defacto, any children you have under age 18 or any other financial dependants.

It’s also important to understand that different tax treatments apply to the taxed and untaxed element of your super.

The taxed element refers to the portion of your super death benefit that has been accumulated through concessional contributions and your super investment earnings.

The untaxed element typically refers to a portion of your super death benefit that comes from a life insurance policy held by your super fund, or where the death benefit is being paid from an untaxed super fund, such as certain government sector super funds.

Paying super death benefits as a lump sum

Paying super death benefits as an income stream

1 Refers to (unfunded) government/public sector super funds only.
2 When the beneficiary turns age 60 the income stream becomes tax free.

Source: AMP 11 April 2019

Important:

This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.