Superannuation as Tax Effective Savings
Superannuation savings are one of the most tax effective ways of saving for the long term. The government are concerned that you will retire with no savings and fall back on the state. As a result they have developed a series of tax breaks around Superannuation to encourage you to save within Super funds.
Salary Sacrifice – Reduce the tax you’re paying on your income
One of the largest tax breaks is by using salary sacrifice. Contributions made pre-tax direct from your salary are only liable to 15% tax, saving a 45% taxpayer 30%, or a 32.5% taxpayer 17.5% that would of otherwise gone to the Government.
Tax effective income and growth
In most scenarios these tax rates are lower than investing outside of a Superannuation fund. For example, owning the investments in your own name can potentially mean paying tax on income and capital gains at the top marginal rate of 47%. A Super fund allows you to potentially ‘wrap’ a tax effective structure around investments. Income of Superannuation funds is generally taxed at 15% and capital gains are taxed at 10% provided the assets are owned for at least 1 year.
Reduced income tax in retirement
Once the Superannuation fund starts to pay an allocated pension then no tax is payable* on income or capital gains accrued on those assets relating to the pension.
A Super fund paying an allocated pension prior to age 60 pays tax at 15% of the assessable amount.
You have the right to choose to contribute to a superannuation fund of your choice. Contact us to advice you on the most appropriate fund for you.
Superannuation assets are protected in the event of bankruptcy
A major advantage of Superannuation is that money up to your pension Reasonable Benefits Limit (RBL) is protected from creditors or in the event of bankruptcy. This means professionals and small business owners can legally protect business premises and certain assets in the event that that something beyond their control happens.
Note: There are special rules concerning the deliberate transfer of assets and excessive super contributions if people attempt to gain this protection when they are already aware things may be going wrong.