What is Superannuation?
The Australian Government has built its own little tax have known as superannuation. The concept behind this is that Australians can receive reduced tax rates on the earnings from their investments if they invest within the superannuation environment. Furthermore, personal tax deductions can also be received for simply contributing to Super.
What’s the catch of investing in Super?
While there are many benefits to investing your savings into superannuation, there is a catch – you are unable to access your superannuation savings until you meet a Superannuation Condition of Release.
What is a Superannuation Condition of Release?
There are many ‘triggers’ that allow you to access your savings. Some of these include:
- Reaching Age 65
- Permanent Retirement after your Preservation Age (55 years – 60 years, depending on your date of birth)
- Total and Permanent Disability
- Death
- Restricted access via an income stream after your Preservation Age even if you are still working
What are the tax rates within Superannuation?
There are two ‘phases’ within Superannuation – Accumulation Phase and Pension Phase.
Within Accumulation Phase, all earnings (including capital gains) are taxed at a maximum of 15%. The Capital Gains Tax (CGT) rate is effectively reduced to 10% if the asset sold was owned for longer than 12 months.
Within Pension Phase, all earnings (including capital gains) are received completely tax-free.
What can I invest in within Superannuation?
There are some limitations of what you can invest in within superannuation. This limitation is either imposed by your superannuation account provider or by the superannuation law itself.
Each superannuation account is a trust structure and therefore requires a trustee. It is up to the trustee to determine what investments are permitted (having regard to the law).
Lower Cost Superannuation Accounts(e.g. Industry Funds) – These type of accounts are generally limited to investment profiles (e.g. balanced, growth, etc) or broad asset classes (e.g. cash, Australian shares, etc.) as investment options. Your account is managed by a professional trustee; however you can choose your investment options.
Medium Cost Superannuation Accounts (e.g. Retail Funds) – These type of accounts will usually offer a range of managed funds as well as access to some ASX-listed shares.Your account is managed by a professional trustee; however you can choose your investment options.
High Cost Superannuation Accounts (e.g. SMSF’s) – A Self Managed Superannuation Fund is usually only limited in investment choice by the law. However, you will need to make sure that the SMSF portfolio complies with the SMSF’s Investment Strategy and Trust Deed. With a SMSF, the members are the trustee of the Fund.
Right now you can get a free $500 top-up from the Government into your superannuation account without giving away a cent with the Super Co-Contribution.