Since the second half of 2019, industry super funds have begun to merge their organisations in an effort to combat APRA’s growing potential in taking action against trustees of underperforming funds. While supers are assuring their members that funds are only merging for their best interest, what exactly will the merging of your super fund mean for you?

Supers which are considering merging with their peers are typically only forming partnerships with companies with similar levels of funds under their management. This generally means that there will be no big changes concerning fees or interest rates made to all members despite the merge. The only changes will come with the transferring of certain super accounts and minimal changes in super services, simply due to the fact that one of the two super funds will become the parent company over the other.

In most cases of supers merging, members of one of the two super funds will have their accounts transferred to the other, just for coherence purposes. While the transferring of your super account may seem like a stressful process, the two companies will take into account your existing super options and preferences and will apply similar options to your new super account under the partnered company.

Super members who will have their accounts transferred will also be issued with a guide to the merger, detailing any impacted services and identifying any necessary actions that may be needed before the merge and after it as well. No guides will be given to super members whose accounts will remain under their original fund unless explicitly requested for.

In the case that your super is merging with more than one other super fund, things won’t get much more complicated either. Super funds are generally looking to merge with others which have members from the same industry (e.g. hospitality workers, the general public, corporate workers, etc.) and have similar services so that your transfer will be kept simple and easy. Owning a super account in a larger super fund (due to merging procedures) will also see security benefits, as the chances of your super fund losing out in profits or being targeted by APRA regulations on smaller super companies dramatically decrease.

Overall, if your super were to merge with another, there is no need to stress, as your super fund will most likely merge with others that already have similar interests and account transfers have already been proven to be quite a simple process.

While the hustle and bustle of operating and managing a business can occupy your mind, it’s important not to forget your superannuation obligations to your employees.

Those who fail to meet their super obligations risk facing severe and even damaging liabilities, penalties and even potential imprisonment. Are you aware of your obligations?

Employees (after entering the workforce) should have a ‘stapled’ super fund that you must pay their super into or the right to nominate a super fund. However, if an employee is not eligible to choose, does not have a fund or fails to notify the employer, the employer must pay their contributions into an employer-nominated or default fund.

The employer-nominated or default fund must be a complying fund (meets specific requirements and obligations under super law) and be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.

Some super funds may ask that an employer becomes a ‘participating employer’ before they can pay contributions to them. Participating employers may have to make super payments more frequently, such as monthly instead of quarterly.

For example, you need to make sure that you are meeting the super guarantee contributions now for all of your employees, including those who would have previously fallen under the $450 threshold.

Before 1 July 2022, employers who paid their workers $450 or more before tax in a calendar month had to pay superannuation on top of the employee’s wages. Now super must be paid on any payments you make to domestic or private workers if they work for you for more than 30 hours in a week, regardless of how much you pay them.

The minimum amount of superannuation that an employer must pay to their staff in Australia is called the superannuation guarantee (SG).

Under the superannuation guarantee, employers have to pay superannuation contributions of 11% (from 1 July 2023) of an employee’s ordinary time earnings when an employee is: over 18 years, or. under 18 years and works over 30 hours a week.

Currently, it must be paid at minimum four times per year, but from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages. This will be known as ‘payday super’, as more consistent contributions will mean that superannuation funds should be better able to increase their compounding potential.

Employers can claim a tax deduction for super payments they make for employees in the financial year they make them. Contributions are considered paid when the employee’s super fund receives them.

Missed payments may attract the SGC (superannuation guarantee charge). While the SGC is not tax-deductible, employers can use a late payment to reduce the charge or as a pre-payment of a future super contribution (for the same employee), which is tax-deductible

It’s likely that you’re already aware that people can put money into their super up until they reach 67 years, and probably already do so yourself. But did you know that you can put money into your children’s superannuation for them, if they are under 18 years old?

One of the advantages of doing this early on is that that money will accrue until your child reaches their preservation age, which will help them with their retirement. Additionally, the compound interest that superannuation funds with as little as $5,000  for example, accumulating at 7% per annum until the child reaches their preservation age could increase exponentially.

Compound interest on these superannuation funds could assist them year after year with increased gains and profit.

With that previous example of a child’s superannuation fund of $5,000, if that amount of money accrued interest at the 7% per annum interest rate over 55 years, the result could be that that amount in the super fund may total over $200,000.

This idea is not always suited for everyone. The funds to start the super account need to be readily available, and for many people that might not be an option. If the money is available through other investment opportunities (i.e. a grandparent wishing to leave their grandchildren money), this could be a means through which that money is tucked away, ready for their superannuation

If you’re looking for a way for your children or grandchildren to be looked after when you are not around, investing in superannuation is a smart way to look towards the future.

Seek further information and advice from your accountant about what we can do for you to get this started.

What happens to your super when you die? It might not be a question that has cropped up in your mind during your present circumstances, but it is something that you should be concerned about.

Upon the untimely death of someone, their superannuation may be one of the elements of the estate that can be bequeathed and divided between their loved ones (trustees of the estate and beneficiaries. 

This is not done through your will though, as it isn’t automatically included unless specific instructions have been given to your super fund. Often this is done through a binding death benefit nomination. These payments are usually paid out in lump sum payments and split between beneficiaries as the deceased dictates.

However, like any property or asset that can be challenged, the death benefits from superannuation and SMSF can be a legal quandary if the appropriate succession planning measures have not been implemented.

Death benefits are one of the most commonly occurring legal issues that plague the superannuation and SMSF sector for individuals. Many court cases involving death benefits result from poor succession planning, as individuals who were not stated to be recipients of the payments miss out on what may be theirs.

In the event of an individual’s death, the deceased’s dependent can be paid a death benefit payment as either a super income stream or a lump sum. The non-dependents of the deceased can only be paid in a lump sum. The form of the death benefit payment (and who receives it) will depend on the governing rules of your fund and the relevant requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR).

If succession planning around who the superannuation is to be left to is in place by the deceased, those who may be classed as dependents and non-dependents can become legally blurred.

In any event, dependents are defined differently depending on what kind of law they are being examined under (superannuation or taxation law).

Under superannuation law, a death benefits dependant includes:

• The deceased spouse or de facto spouse
• A child of the deceased (any age)
• A person in an interdependency relationship with the deceased (involved in a close relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other).

Under taxation law, a death benefits dependant includes:

• the deceased’s spouse or de facto spouse
• the deceased’s former spouse or de facto spouse
• a child of the deceased under 18 years old
• a person financially dependent on the deceased
• a person in an interdependency relationship with the deceased

Depending on the type of law under which the beneficiary is classified affects how they can interact with the death benefits.

How Do I Make Sure My Beneficiaries Will Receive The Death Benefits That I Want Them To Have? 

Death benefit payments need to be nominated by the holder of the superfund, as superannuation is not automatically included in your will. If you fail to make a nomination, your super fund may decide who receives your super money regardless of who is in your will.

That’s why succession planning is important when it comes to death benefits, no matter the situation. Even if you are at your healthiest, you’ll want to be prepared for any eventuality.

To get your succession planning right, here are 5 tips that will help you during the process.

• Locate and/or consolidate your superannuation funds – if you do not, ensure a binding death benefit nomination (BDBN) is in place for each fund.
• Prepare a BDBN – this is a notice given by you as a superannuation fund member to the trustee of your superfund, nominating your beneficiaries on your death and how you wish for the death benefits to be paid.
• Seek advice before making changes to your level or type of insurance cover – you may be compelled to disclose medical conditions that may impact your ability to obtain cover or the cost of your cover if you remove or change your insurance cover.
• Review your binding death benefit nomination (BDBN) each year during tax time. 
• Seek advice on a superannuation clause under your will. Though superannuation is not an estate asset, the death benefit may be paid to the estate under certain conditions, which you should consult with a super professional about.

The Federal Budget was released last Tuesday, announcing key changes to taxation and business. For superannuation, the minimum pension drawdown amount was in the spotlight.

The reduction in the minimum pension drawdown amount for superannuation pension recipients has been extended for another year by the Federal Government, as announced in the Budget for 2022-23.

The minimum pension amount will be only 50% of the general amount (the balance from which the pension is drawn). For example, a 65-year old would usually need to draw down 5% of their opening balance as a pension payment throughout the year.

For the 2022-23 financial year, the minimum amount will be reduced 50% (dropping this to 2.5%). This measure is set to cost the Federal Government around $19.2 million dollars for the 2022-23 years, but you need to be alert and conscientious about it.

Why Is That?

Whilst it is a great outcome to keep as much of your money in your super as is possible (if it’s not required for you to live on), you do need to be conscious that at some point, the remaining balance will be passed onto the next generation, potentially as a part of their inheritance.

When this money does change hands and is given to the next generation if the superannuation balance includes a taxable component, then your children may be subject to as much as 17% tax on the capital value of that balance.

Different tax treatments can apply depending on whether your super is being paid as a lump sum, income stream or mixture of both, and if your beneficiary or beneficiaries are classified as ‘tax dependants’.

A tax dependant includes:

• a current spouse, including defactos
• any children of the deceased who are under the age of 18
• any other financial dependents.

If your beneficiaries were not financially dependent of you, such as a spouse or child under 18 years of age, then they will have to pay tax on the inheritance that you have left for them in your superannuation fund.

However, if you take that money out of your super and it passes to your children as a part of your estate instead, there will be no death duties payable (in this instance, ‘death duties’ refers to inheritance tax that may be payable, which has not been an issue since 1981).

The primary reason for the reduction in the minimum pension payment amount is to protect pensioners from having to sell their assets during a volatile period. However, this is a double-edged sword that needs to be carefully considered and weighed against your circumstances.

You May Need To Start A Discussion 

Superannuation can be a tricky area to navigate, especially when you’re trying to do it by yourself.

If you’re approaching retirement, you may have questions about how to prepare for your pension years. These may include

1. General retirement adequacy – how much money you’ll actually need to retire on
2. How to manage your finances in retirement
3. Old age issues that could crop up
4. Using your home to fund retirement and insurance (and embracing the grey nomad lifestyle)
5. Recent changes to superannuation measures, including the extended timeframe of the minimum pension drawdown,

Consulting with a professional is the best way to ensure that your pension is currently operating at its most effective level, and they can assist you with understanding what you may need to do to get your affairs in preparation for the future.

There were a few changes to superannuation that were passed by the Senate recently.

You can now use the bring-forward rule to make three years’ worth of non-concessional contributions (where you don’t claim a tax deduction) up until the age of 67.

Last year the rules had changed to permit a person to make non-concessional contributions up to the age of 67 but the use of the bring-forward rule had stayed at an age limit of 65 years old, as it required a full Bill to be passed by both Houses of Parliament.

This new age limit will apply to contributions made on or after the 1st July 2020.  This is particularly good news for people that turned 67 during the year and utilised the three year bring forward rule in anticipation of the law being passed.

From the first quarter after receiving royal assent (most likely to occur from 1st July), Self Managed Superannuation Funds will be allowed to have up to six members.  The limit is currently four members. For larger families, this will be of particular use and relevance, as the parents involved in the fund may wish to include more than two children (this could potentially be up to four children involved in this case).

Pauline Hanson’s One Nation Party also passed through an amendment into the changes that will remove a charge on excess concessional contributions. Concessional contributions are those where you or your employer can claim a tax deduction on a contribution.

If you or your employer currently contribute over the allowable caps (usually limited to $25,000 but moving to $27,500 on 1 July) to your super, you are charged an amount of around 3% of the excess you contributed and it is calculated from the 1st of July in the year that you made the contribution up until the day your assessment is due.

There are still other charges that will apply to exceeding contribution allowable caps, such as Shortfall Interest Charge and General Interest Charge. The biggest is usually the Excess Concessional Contributions Charge.

This change was never announced and was not part of government policy but made it through anyway.  One Nation also tried to increase the maximum allowable tax-deductible contributions for persons aged over 67 years old, but that amendment did not go through.

Another change that had not been previously announced was that if you had an amount released from super under the Covid Relief package ($10,000 per year for two years) then you will not be able to claim a tax deduction for the same amount that you contribute back into super up until 2030.

For example, Peter took his $20,000 under the Covid Release package.  Peter contributes $1,000 per month into his superannuation fund and usually claims a tax deduction for that amount.

The first $20,000 that Peter contributes after 1st July 2021 will not be able to be claimed as a tax deduction. This only applies to personal contributions, so if your employer contributes on your behalf this will not impact you.

Want more information about super contributions, but not sure where to start? Come speak with us – we can help you with any questions you may have about superannuation.

If you are a sole trader, or in a partnership, then you are not obligated to make super guarantee (SG) payments for yourself. However, you should still consider making personal contributions to super to help you save for retirement.

Your methods of contributing to super can depend on how you pay yourself. For example, if you receive a wage, then you can set up a regular transfer into super from your income before tax. If your income is from business revenue, you can periodically transfer a lump sum into your super depending on your cash flow.

When contributing to personal super contributions with your after-tax income, you may be eligible to claim tax deductions on them. Before claiming a deduction, you must give your selected super fund a ‘Notice of intent to claim or vary a deduction for personal contributions’ form, and received an acknowledgement from your fund.

You can contribute up to $25,000 a year in concessional super contributions, which are the contributions you can claim tax for, and an additional $100,000 a year in non-concessional super contributions, which you don’t claim deductions for. If you are aged 75 years or older, you are only able to claim tax deductions for contributions you made before the 28th of the month after you turned 75.

You should also check if you are eligible for extra government co-contributions to your super, which are available to eligible low and middle-income earners to increase their retirement savings. If you have a yearly income of less than $52,697 before tax, and you meet the eligibility criteria, then the government will match 50 cents for every dollar that you contribute to your super from your after-tax income. For example, if you contribute $1,000 to your super, the government’s co-contribution will be $500. This will get paid directly into your super account after you lodge your tax return for the year. There is a maximum amount the government will contribute which depends on your income.

The market for super funds is extremely competitive. Scammers take advantage of this by promising unrealistic benefits to acquire personal or account details. They are able to use this information to steal your identity or transfer your super to an account they can access. 

Scammers can approach you in various ways. You could receive a phone call, email, or be contacted online. 

This is what you should be wary of: 

• Advertisements promoting early access to super
• Offers to ‘take control’ of your super
• Offers to invest your super in property
• Offers quick and easy ways to access or ‘unlock’ super

The best way to spot a scam is to know what the rules about your super fund are. Knowing when you can legally access your super will protect you from false promises. Additionally, the ASIC website lets you check if someone is licensed, if they are not licensed, more likely than not, they should not be trusted. 

If you believe that you’re being targeted by a scam, then rather than simply ignoring approaches and not engaging, you should report the scam. You can do this by calling the ATO or completing the online complaint form on the ASIC website. 

Integrity measures included in Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 have now been enacted with an effective date of 1 July 2018. There have been amendments made to non-arm’s length income (NALI) provisions and Limited recourse borrowing arrangement (LRBA) amounts will now be included in total superannuation balance (TSB) calculations. The bill passed both houses on 19 September and reached assent on 2 October 2019.

NALI provision amendments:
The definition of NALI has been expanded. From the 2018-19 income year onwards, the ordinary or legal income of a super fund will be NALI and taxed at the top marginal rate. This has been introduced to ensure SMSFs and other complying superannuation entities cannot evade the NALI rules by entering into schemes involving non-arm’s length expenditure, including where expenses are not incurred. Any capital gains from a subsequent disposal of an asset may also be treated as NALI.

LRBA amounts included in TSB calculation:
Where an SMSF has an LBRA that was made under a contract that has been entered into on or after 1 July 2018, the calculation of an individual’s TSB will now include any outstanding LRBA amount attributable to each member’s interest. This will apply if:

• The LRBA is with an associate of the SMS. In this case, all members of the fund whose interest is supported by the asset purchased with the LRBA must include their portion of the outstanding balance of the LRBA amount in their TSB calculation. Or;
• A member of the fund met a condition of release with a nil cashing restriction. In this case, the member must include the outstanding LRBA amount attributable to their super interest in their TSB calculation.

This change does not include the refinancing of an LRBA that was made under a contract entered into before 1 July 2018, where the new borrowing is secured by the same asset or assets as the old borrowing and the refinanced amount is the same or less than the existing LRBA.

If you’ve already lodged your 2019 SMSF annual return and are affected by these new measures, you may need to amend your return. Members of an SMSF that has an LRBA affected by this new law, may have an inaccurate TSB. If affected, you will need to calculate your own TSB until March 2020 at the earliest while the ATO systems are being updated.

Many years ago Julia Gillard’s government announced increases in the Superannuation Guarantee rate from 9% at the time, up to 12%.  The impact of the Global Financial Crisis has led subsequent governments to continually postpone these increases. So far, Australia has only received two increases, back in 2013 and 2014, when the superannuation rate went up to 9.5% over two years.  It has remained at 9.5% since 2014.

 

Now it is time for the next increase. This will happen on 1 July 2021 when the rate of superannuation that you have to pay for most of your employees will be 10% of their salary or wage instead of the current 9.5%.

 

For most employers that are using payroll software, this change will happen automatically. You should however confirm with your software provider (either directly or through someone like us) that this will happen to ensure that you remain compliant without needing further action.

 

For most employees, this will mean an extra 0.5% added to their current salary plus super.  But where an employee is on a contract where their salary is superannuation inclusive it could be that they will receive a corresponding reduction in their salary to offset the extra superannuation.  Employers and employees will need to have a discussion about this so that everyone knows the situation they will be in for the new financial year.

 

The proposed increase to 12% is still scheduled to happen in 0.5% increments each financial year until the 2025-26 year when the Superannuation Guarantee rate will peak at 12%.  The rates applicable to each financial year are proposed to be:

 

           1 July 2021 to 30 June 2022                 10%

           1 July 2022 to 30 June 2023                 10.5%

           1 July 2023 to 30 June 2024                 11%

           1 July 2024 to 30 June 2025                 11.5%

           1 July 2025 onwards                             12%

 

It is also possible that the government will delay the increases as it has done in the past, but you will be kept informed regarding that information.