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Contributions, when are they made?

Thanks to the evolving rules and additional tests, the world of superannuation contributions continues to be a source of confusion, resulting in misunderstandings and genuine errors. Whether it’s the work test, work test exemption, downsizer rule, bring forward rule, or carry forward rule, the area is a never ending array of snappy titles that are hard to differentiate.

Irrespective of the evolving rules, there continues to be one fundamental superannuation contribution concept that often causes a panic at the end of each financial year, and that is contribution timing. So when is a contribution made?

If a contribution is not made in the intended financial year, it may result in the denial of a deduction, which often results in substantial tax consequences or excess contributions. So, with the various contribution methods, how do you ensure a contribution is received and counts in the intended year?

Contribution timing

When planning contributions, particularly during the later stages of June, it is vital to understand that a contribution is counted when the payment is received by your fund, not when the payment is sent. This applies regardless of the type of contribution, how the funds are transferred and the type of fund, for example:

• A cash payment is deemed to have been made when the cash is received by the superannuation fund.
• An electronic funds transfer is deemed to have been made when the funds reach the superannuation fund account.
• A contribution by personal cheque is deemed to be made when the cheque is received by the superannuation fund, and promptly presented and honoured.

The last example is particularly useful for SMSF trustees attempting to make a last minute contribution. The contribution can be accepted as long as the cheque is dated on or before 30 June and is presented promptly. If the funds arrive later than a few business days it would be questionable and would not be accepted without extenuating circumstances.

What about “in-specie” contributions?

In addition to making contributions as cash, it is possible to transfer alternative assets into superannuation, primarily an SMSF. These are called “in-specie” contributions. The only assets that can be transferred into superannuation by a member are as follows:

• ASX Listed Securities
• Widely held Managed Funds
• Business or Commercial Property
• Cash based investments such as Bonds and Debentures.

The timing of the contribution will occur when the change of beneficial ownership occurs. Broadly, this is when everything needed to facilitate the change in legal ownership has been completed.

For example, a superannuation fund will have acquired beneficial ownership of shares when the fund obtains a properly executed off market share transfer that is in registrable form.

It is important for all superannuation members to understand contributions and when they are deemed to be received by a fund. 

Source: Bell Potter

Will I pay tax on my super when I retire?

Tax is often the last thing on our minds when we're planning for retirement but it's important to understand how your retirement income will be taxed, so you can make the most of your savings.

The good news is that super is a tax-effective way of building wealth for your retirement and the tax benefits become even more pronounced when you retire.

The tax treatment of payments from superannuation depends on factors such as your age and circumstances at the time they are received.

On or after age 60

No tax is payable on either lump sum payments or account-based pension payments received on or after age 60.

By converting your super account to an account-based pension account, investment earnings – including realised net capital gains, are generally tax-free within your pension account.

Before reaching 60

There are limited circumstances in which you can access your super before reaching 60 including financial hardship and compassionate grounds.

The tax treatment of payments made from super before reaching your preservation age are:
Income payments from your account-based pension
Tax-free component:         Tax-free
Taxable component:          Taxable at your marginal tax rate (plus Medicare levy)
Tax on lump sum payments
Tax-free component:         Tax-free
Taxable component:          Taxed at 20% (plus Medicare levy)

Tax on disability super benefit

A tax offset of 15% is generally available on disability super benefits paid as a pension to members under age 60.

Tax on terminal illness benefits

Generally no tax is payable on benefits that are paid to you under the ‘terminal medical condition’ condition of release.

Source: Perpetual

Why you need insurance and what are your options

We don’t need insurance until we do. 

Protecting your wellbeing and your wallet

“Do I really need this insurance?” It’s probably a question you’ve asked at some point when deciding whether to part with your money. But maybe the real question should be “What if I became ill, how would we cope?” 

Your health and wellbeing are the most important assets you have, so it pays to put in the hard yards and get your head around the tricky topic of insurance. Illness or injury can strike at any age or life stage, and it certainly doesn’t wait for the most convenient time to happen. Having peace of mind about having enough money if things take a nosedive could be your best investment yet, as well as helping you sleep at night.

When insurance is a good idea

Often insurance can come on your radar off the back of someone you know falling really ill, or when you read something scary in your news feed. These events can make you stop and think but you don’t need to wait for a warning signal. In fact, getting on the front foot ahead of major life changes is often the best reason to get your insurance sorted.

Here are some scenarios to have a think about:

• Landing your dream job – no job is completely secure and if you’re about to ramp up your income your lifestyle is probably going to upgrade too. If one day you lost your income, how long would you be able to pay the bills?
• Switching to an income that’s up and down – while the gig economy or a well paying contract has its lifestyle benefits, there is a trade off. You don’t benefit from things like sick leave or annual leave and if your income takes a sudden downturn, you might be left struggling for cash.
• Starting a family – when you settle down with a partner or have kids, it’s not just about you anymore. You’re going to have someone who truly depends on you and what happens to you will have a big knock on effect on them. Starting a family might also mean taking on a bigger mortgage.
• Getting your head around the important lingo – insurance jargon is one thing you’ll need to make peace with as you navigate your options. If you’ve looked at the insurance section of your super statement, you may notice ‘Death’ insurance – but did you know it may also cover you for a terminal illness diagnosis? And what on earth is TPD? How do you know what constitutes Total and Permanent Disability? Don’t worry, we’ve got all the details below.

Reading the fine print

But first, a word about insurance policies. While having a general understanding of what type of policy covers what, it’s no substitute for reading your insurance Product Disclosure Statement (PDS) and knowing exactly what you’re getting. Just like travel, or home and contents insurance, policies and the amount they pay out can vary a lot. So it’s worth reading the fine print on something so important in your life.

Protecting your income

If you’re working and you or your family rely on your income to cover the bills, you should be giving serious thought to taking out insurance to protect your income. You have three options for this:

• Income protection – if you become ill or injured and can’t work for a short period of time, income protection will provide monthly payments up to around 70-85% of your income to help cover your expenses. This cover is available directly through an insurance company or via your super fund but it may not be automatic – you may have to opt in or apply for cover. Some generous employers may build income protection into a benefits package and pay your premiums for you.
• Total and Permanent Disability (TPD) insurance – as the name suggests, this cover is designed for when you experience a permanent disability that prevents you from ever working again. For example, if you were to have a serious heart attack or stroke that required six months of rehabilitation and you’re unable to return to work again for a job you’re qualified for, this cover may pay out. Again, you can get this type of cover directly through an insurance company or via your super fund. In fact, this cover may already be automatically included within your super fund. Cover is also available outside super, where you can apply for ‘own occupation’ insurance. Instead of paying out only if you are unlikely to ever work again in any reasonable job you could do, own occupation cover will pay you if you can’t return to the job you were working in immediately before you were injured or became ill. 
• Life cover – also known as ‘Death’ cover which pays a lump sum amount of money if you die. The pay out goes to whoever you nominate as beneficiaries or your estate. As with TPD, you may receive this type of cover automatically as part of your employer’s default super fund. And some life cover will also pay out if you are terminally ill, meaning you can use the funds to help your family before you pass away.

Covering yourself for critical illness

One of the most important types of insurance you can get is the one you can’t get through your super fund. Trauma (also known as critical illness) cover will pay you a lump sum of money if you are diagnosed with a serious illness, such as coronary and cancer illnesses. These conditions often need years of treatment or rehabilitation, which can be very hard to manage without any financial support. Trauma cover can work hand in hand with income protection, which gives you regular payments instead.

Trauma cover isn’t cheap but it certainly pays off if you need it. And in the event, you’re dealing with a serious and stressful treatment such as chemotherapy, you won’t have to worry about money or spend time and energy trying to keep earning an income.

One caveat about trauma cover – it doesn’t cover you for ‘low level’ strokes or cancer where your work is not going to be significantly interrupted. For example, if you need treatment once a week, this would not be considered a serious interruption and the insurer is unlikely to pay out your claim. Each policy is different and it’s important to understand what to expect before taking out any insurance cover.

Source: MLC

Tax time checklist for property investors

In Australia, investing in real estate isn’t the preserve of a wealthy elite.

The nation’s 2.24 million property investors, owning a collective 3.25 million homes^*, are everyday Australians – skilled tradies, small business owners and professionals.

If you’re a property investor, being tax-smart can be just as important as buying the right place – regardless of whether you lodge your tax return yourself or with an agent.

So it’s important you keep records right from the start, you’re across what you need to declare and you know what you can claim at tax time – particularly in the current climate of high interest rates, when every dollar counts.

What you need to declare

When you lodge your tax return, you need to let the Australian Taxation Office (ATO) know how much rental income you received over the financial year.

• If you own the property in your name, you’ll need to declare your income on your individual tax return.
• If you own the property in the name of a company or trust, then rental income forms part of the company or trust tax return.
• If you own the property with another person, then you must declare rental income and claim expenses according to your legal ownership. As joint tenants your legal interest will be an equal split, and as tenants in common you may have different ownership interests.

You may also need to declare:

• Rental bond returns if your tenant defaulted on rent or caused any damage.
• Insurance payouts to compensate you for damage.
• Letting and booking fees you received.
• Tenant payments to cover repairs.

More information about what rental income must be declared is available at the ATO website.

What you may be able to claim

• Mortgage interest.
• Management costs, including property agent fees and commission.
• Maintenance costs, including cleaning, gardening, pest control and repairs.
• Insurance – landlords, mortgage, building, contents and public liability.
• Body corporate fees and charges.
• Land tax.
• Depreciation.
• Building costs, including extensions, alterations and structural improvements as capital works deductions.
• Loan establishment fees.
• Title search fees.
• Costs of preparing and filing mortgage documents.
• Some legal expenses.

You can’t claim for conveyancing fees or stamp duty but if you sell your property, you can use these costs to help work out if you need to pay capital gains tax.

You can find out more about rental expenses you can claim  at the ATO website.

^* How many Australians own an investment property Property update.com.au

Source: AMP