Superannuation: Transition to Retirement Income Streams

Transcription

1 Superannuation: Transition to Retirement Income Streams More people are taking an interest in their superannuation than ever before! Understanding the superannuation tax concessions available to you Tax advantages and opportunities with transition to retirement income streams 1

2 Superannuation: The Journey Destination: Superannuation pension in retirement During the journey: Transition to Retirement From the beginning: Accumulating Superannuation Superannuation in retirement Destination: Superannuation pension in retirement Income stream (pension) Age 60 or more? Tax free pension! 2

3 Superannuation in retirement Superannuation fund investment earnings: Interest, rent etc dividends on shares capital gains No tax on investment earnings! Tax free interest Tax free capital gains Tax free dividends & franking credits refunded (30% company tax nil super earnings tax = 30% tax refund) Income stream (pension) Superannuation in retirement Superannuation fund investment earnings: Interest, rent etc dividends on shares capital gains No tax on investment earnings No tax on superannuation pension after age 60 Tax free living in retirement! Income stream (pension) 3

4 Accumulating Superannuation From the beginning: Accumulating Superannuation While accumulating : Tax on investment earnings Investment earnings 15% Capital gains 10% (1/3 rd discount )* *only if investment held for 12 months or more Dividend imputation credits refunded (30% company tax 15% super fund earnings tax = 15% tax refund) Superannuation: The Journey Destination: Superannuation pension in retirement During the journey: Transition to Retirement From the beginning: Accumulating Superannuation 4

5 Transition to Retirement Income Stream How it works: Introduced from 1 July 2005 Government policy change. Recognition of Australia s aging population. Encourage older Australians not to retire early but stay in the workforce longer Allow access to a superannuation income stream (pension) to supplement personal income e.g. reduce work to say 3 days per week and transition into retirement However, no legislative requirement or work reduction test to qualify for transitioning to retirement. You must have reached your preservation age (currently age 55) You cannot commute your income stream into a lump sum You can stop (turn off) income stream. Superannuation account reverts to accumulation mode Cannot draw more than 10% of member s account balance each year Must draw at least a prescribed minimum pension amount each year in cash Transition to Retirement Income Stream How it works: Investment earnings taxed & capital at 15% gains are tax exempt Pension: Age 60+: Tax free Age 55 to 59: 15% tax rebate * *based on individual circumstances You must have attained your preservation age Maximum pension you can draw = 10% of account balance p.a. Prescribed minimum you must draw = minimum % (depending on age) 5

6 Transition to Retirement Income Stream Who is eligible for a Transition to Retirement Income Stream (TRIS)? You must meet a condition of release : Attain your Preservation Age : If born before 1 July 1960: Age 55 Raising of Preservation Age: If born on or after 1 July: 1960: : : : & later: 60 Transition to Retirement Income Stream How it works: Minimum drawing amount Prescribed minimum income stream (pension) you must draw each financial year Percentage of your superannuation pension account balance: Age* Minimum** pension percentage Reduced minimum% 2011/2012 Age 55 to 64 4% 3.00% Age 65 to 74 5% 3.75% Age 75 to 79 6% 4.50% Age 80 to 84 7% 5.25% Age 85 to 89 9% 6.75% Extension of Government relief due to economic conditions affecting investment markets. Minimum pension drawing rate reductions continue for 2012/2013 Age 90 to 94 11% 8.25% Age 95 & over 14% 10.5% Age is determined at commencement of pension, then 1 July each subsequent year ** Percentage is pro-rata if commenced part way through a financial year. No minimum pension is required to be paid if commenced on or after 1 June in a financial year. 6

7 Transition to Retirement Income Stream: TRIS Frequently Asked Questions: FAQ: Q: Do I need to stop working to start a TRIS? A: No. There is no test requiring a reduction of work hours Q: Can I continue to work full time while receiving a TRIS? A: Yes. Earn fees & run your practice as before/ or be paid a full salary. Q: Is a TRIS taxable in my hands: A: If aged 60 or more when received: No If between age 55 to 59: your personal marginal tax rate less: a rebate of up to 15% of the taxable pension Transition to Retirement Income Stream ATO View: The general anti-avoidance provisions will not apply where taxpayers are simply commencing a transition to retirement pension, and making salary sacrifice contributions to superannuation..we would only be concerned where accessing the pension or undertaking the salary sacrifice may be artificial or contrived. Tax Commissioner Michael Carmody 7

8 Transition to Retirement Income Stream: TRIS Frequently Asked Questions: FAQ: Q: Do I need to stop working to start a TRIS? A: No. There is no test requiring a reduction of work hours Q: Can I continue to work full time while receiving a TRIS? A: Yes. Earn fees & run your practice as before/ or be paid a full salary. Q: Is a TRIS taxable in my hands: A: If aged 60 or more when received: No If between age 55 to 59: your personal marginal tax rate less: a rebate of up to 15% of the taxable pension Transition to Retirement Income Stream: Taxation: Age 60 & over: Age 55 to 59: Tax free super pension Taxable less 15% tax rebate Member Age John 61 Mary 57 Account balance Minimum TRIS pension $1,000,000 $30,000 $1,000,000 $30,000 8

9 Transition to Retirement Income Stream: Taxation: Pension between age 55 & 59 Concessional undeducted contributions from your private savings are not taxable Only contributions for which a tax deduction has been claimed plus all earnings of the fund are taxable TRIS Pension: $1.00 Tax fee component $0.50 Taxable component $0.50 Transition to Retirement Income Stream: TRIS Frequently Asked Questions: FAQ: Q: Do I need to stop working to start a TRIS? A: No Q: Can I continue to work full time while receiving a TRIS? A: Yes Q: Is a TRIS taxable in my hands: A: If aged 60 or more when received: No If between age 55 to 59: your personal marginal rate 15% rebate Q: Can my employer and I continue to contribute to superannuation while drawing a TRIS? A: Yes Q: Can I re-contribute my TRIS to my superannuation fund as a nonconcessional undeducted contribution? A: Yes, subject to you contribution caps and seeking financial advice 9

10 Transition to Retirement Income Stream: Contributing while drawing a TRIS No need to retire Reduce working hours (if you want to) Supplement your personal income with a superannuation pension Deductible contributions & earnings taxed at 15% Contributions: Personal tax deductible concessional Personal undeducted non-concessional Employer 9% & salary sacrifice concessional Tax free earnings & capital gains Pension: Age 60+: Tax free Age 55 to 59: 15% tax rebate * *based on individual circumstances Transition to Retirement Income Stream: Contributing while drawing a TRIS New accumulation entitlements can become a new TRIS e.g. annually say at 1 July to make all earnings tax free for the year ahead. then begin accumulating again 10

11 Transition to Retirement Income Stream: Taxation: Determining tax exempt earnings in a fund paying a TRIS pension: Earnings on investments that produce a pension are tax exempt: Two methods: 1. Liability method: Percentage determined by an actuary each year as tax exempt and applied to all fund earnings 2. Segregation Method: Designate investments that are pension generating assets (strategic in a SMSF) Tax Exempt earnings Earnings Self Managed Superannuation Funds SMSFs You are the trustees & the members Choose your own investments: Cash, fixed interest, bonds Shares in listed companies Managed funds & property trusts Residential or commercial real estate You are the Trustee Flexibility to implement your financial & taxation strategies Timing of realizing capital gains (accumulation phase vs pension mode) Segregation of pension investments ( to maximise tax free earnings and gains) Confidence in your estate planning Being in control 11

12 Transition to Retirement Income Stream: In Summary: Transition to Retirement Income Streams: draw a maximum 10% of your superannuation member balance p.a. as a TRIS pension, while still working; tax free TRIS pension (age 60+); tax free super fund investment earnings and capital gains on pension investments in the superannuation fund strategic separation of pension assets to maximize tax exempt earnings or capital gains (in a SMSF); no need to retire & can keep contributing to superannuation minimum TRIS pension may be drawn at least once per year TRIS pension drawing could be re-contributed back into the fund, subject to your contribution caps (seek advice) Australia s Superannuation Savings >$1.3 trillion invested in superannuation in Australia 442,607 SMSFs hold 1/3 rd of Australia s Super Savings* In 2011, approx 50% of investment income of SMSFs was tax exempt pension earnings (Source: ATO) *ATO Quarterly Statistical Report Oct

13 Disclaimer: These notes contain factual information concerning the taxation and compliance implications of certain superannuation matters. The notes are intended as a guide only and may not apply to circumstances of particular individuals. Do not act on the contents of these notes without first obtaining specific advice from a qualified tax or legal professional about your particular circumstances. Hanrick Curran Group, its associates and the presenter hereby disclaim any responsibility for persons relying in whole or in part on these notes or the information presented at this seminar. The Corporations Act 2001 deems superannuation funds, self managed superannuation funds (SMSFs) and pensions to be financial products and may consider a recommendation to contribute to a fund, establish or join a SMSF, or to commence a pension to be financial product advice as defined by that Act. We are not licensed to give such advice. You should consider taking advice from an AFS License holder before making a decision on any financial product. Thank you 13