How Can Superannuation Work for Me?
MBA, BSc, DipFP
Financial Planner / Managing Partner
Everyone understands that superannuation is an asset that is for the long-term and contributions are made by employers to an employee’s superannuation funds. However, what is not sometimes known is a superannuation is considered to be one of the most tax effective investment structures available.
What does this mean?
When we invest in shares, property or deposit money to a bank account we receive income from these assets which in the case of shares is called a dividend, for property is called rent, and for a bank account is called interest. Just like income from our jobs this investment income (dividends, rent and interest) is taxed at our marginal tax rate when we lodge our annual tax return and this tax rate can be as high as 47%!
What makes superannuation so beneficial is that this investment income derived from assets within super only taxed at a maximum of 15%. Furthermore, any growth achieved on our assets held for longer than 12 months in super are effectively taxed at 10% in comparison to 23.5% for a taxpayer on the 47% rate.
Sounds too good to be true?
In many ways it is too good to be true and in order to limit the tax that the government loses in allowing people to receive these tax benefits in super the government limits the amount that we can invest in the super environment.
Tax-deductible (or Concessional) contributions are limited to $25,000 p.a. for individuals and after-tax (or Non-Concessional) contributions are limited to $100,000 p.a.
The tax benefits don’t end here!
When we retire if we transfer our super to a pension we can pay 0% on this investment income and capital gains and those retiring above the age of 60 can be paid an income stream from their pension without paying any tax.
Superannuation provides us with many other features that can benefit us over time and now financial advisory services consider our clients goals and objectives and focus on whether these benefits provided by the super system can help our clients achieve their goals.Interested in knowing more?