Thought this may be of interest to some ....
NEWSLETTER
By Noel Whittaker
Thursday, 3 November 2005
Superannuation just keeps getting better and better. The much awaited rules that will allow you to split your super with your spouse are now before Parliament and there is little doubt that everything will be in place for the system to start working from 1 July 2006. At this stage it seems all contributions made from 1 January 2006 will be eligible.
Just be aware that both Labor and Democrats opposed the legislation allowing people to split superannuation with their spouses and it is only because coalition controls the Senate that these truly wonderful new rules are coming into being.
It will work like this. Once a year you will be able to instruct your fund to transfer up to 100% of your superannuation contributions in that year to your spouse. Both undeducted and deductible contributions can be transferred, but the 15% contributions tax on the deductible contributions will have to be taken into account when the transfer is made.
CASE STUDY: Harry earns $95,000 a year and his wife Mavis earns $25,000 a year. They are both aged 58 and have calculated they will need close to a million dollars when they retire. However, this presents a challenge for them because he has $475,000 in super and she has just $30,000. Even though they have spare money to invest because their children have left home and they are debt free, their investment strategy is hampered because the bulk of the superannuation is in his name and he is approaching his reasonable benefit limit (RBL) of $648,946. They would love to plough as much money into superannuation as they can afford but until now, this could turn out to be counter productive. If he exceeds his RBL, he would have to take half his super as a complying income stream or face the problem of being in excess benefits.
The latest changes to super will make a huge difference to them. Now he will be able to salary sacrifice, say $60,000, into super and reduce his taxable income to $35,000 a year. They will still be able to live comfortably on the two incomes, as they will still earn $50 000 per annum after tax, but every year he can instruct his fund to transfer $60,000 to her fund.
Thanks to the new rules, and the miracle of compounding, they will be on easy street when they reach 65. If his super earns eight percent per annum, the present balance of $475,000 will become $830,000 and because of indexation, his lump sum RBL would have grown in those seven years from $648,946 to $858,300. Therefore he is well within his RBL. The contributions of $60000 a year that were placed into Mavis' superannuation will take her balance to $613000 at age 65 if her superannuation earns eight percent too.
Look at what they have achieved on the day they retire. Their total superannuation is $1,443,000 from which they could withdraw $172,000 each tax free to spend on such luxuries as renovating the house, replacing the car and going on a world trip. This would leave them with $1,099,000.
They start allocated pensions and get a further bonus. The million dollars plus they have in the low tax superannuation area moves to the zero taxed allocated pension fund area. They choose the minimum allocated pensions - $41,910 for him and $28 089 for her. The tax on his allocated pension will be $8,433 but because allocated pensions attract a 15% rebate, in this case $6,287, he will pay tax of just $2,146. Her allocated pension is almost tax free.
The combination of superannuation, salary sacrifice and the new splitting rules, have not just given them $344,000 of tax free spending money; it has also left them with $1.099 million in a tax free environment while drawing an income of $69 999 per annum less just $2,147 in tax.
How much better can it get! And yet there are still some people out there who question the use of superannuation as a wealth creation tax saving device.
I stole the above from Noels latest newsletter.
A86
NEWSLETTER
By Noel Whittaker
Thursday, 3 November 2005
Superannuation just keeps getting better and better. The much awaited rules that will allow you to split your super with your spouse are now before Parliament and there is little doubt that everything will be in place for the system to start working from 1 July 2006. At this stage it seems all contributions made from 1 January 2006 will be eligible.
Just be aware that both Labor and Democrats opposed the legislation allowing people to split superannuation with their spouses and it is only because coalition controls the Senate that these truly wonderful new rules are coming into being.
It will work like this. Once a year you will be able to instruct your fund to transfer up to 100% of your superannuation contributions in that year to your spouse. Both undeducted and deductible contributions can be transferred, but the 15% contributions tax on the deductible contributions will have to be taken into account when the transfer is made.
CASE STUDY: Harry earns $95,000 a year and his wife Mavis earns $25,000 a year. They are both aged 58 and have calculated they will need close to a million dollars when they retire. However, this presents a challenge for them because he has $475,000 in super and she has just $30,000. Even though they have spare money to invest because their children have left home and they are debt free, their investment strategy is hampered because the bulk of the superannuation is in his name and he is approaching his reasonable benefit limit (RBL) of $648,946. They would love to plough as much money into superannuation as they can afford but until now, this could turn out to be counter productive. If he exceeds his RBL, he would have to take half his super as a complying income stream or face the problem of being in excess benefits.
The latest changes to super will make a huge difference to them. Now he will be able to salary sacrifice, say $60,000, into super and reduce his taxable income to $35,000 a year. They will still be able to live comfortably on the two incomes, as they will still earn $50 000 per annum after tax, but every year he can instruct his fund to transfer $60,000 to her fund.
Thanks to the new rules, and the miracle of compounding, they will be on easy street when they reach 65. If his super earns eight percent per annum, the present balance of $475,000 will become $830,000 and because of indexation, his lump sum RBL would have grown in those seven years from $648,946 to $858,300. Therefore he is well within his RBL. The contributions of $60000 a year that were placed into Mavis' superannuation will take her balance to $613000 at age 65 if her superannuation earns eight percent too.
Look at what they have achieved on the day they retire. Their total superannuation is $1,443,000 from which they could withdraw $172,000 each tax free to spend on such luxuries as renovating the house, replacing the car and going on a world trip. This would leave them with $1,099,000.
They start allocated pensions and get a further bonus. The million dollars plus they have in the low tax superannuation area moves to the zero taxed allocated pension fund area. They choose the minimum allocated pensions - $41,910 for him and $28 089 for her. The tax on his allocated pension will be $8,433 but because allocated pensions attract a 15% rebate, in this case $6,287, he will pay tax of just $2,146. Her allocated pension is almost tax free.
The combination of superannuation, salary sacrifice and the new splitting rules, have not just given them $344,000 of tax free spending money; it has also left them with $1.099 million in a tax free environment while drawing an income of $69 999 per annum less just $2,147 in tax.
How much better can it get! And yet there are still some people out there who question the use of superannuation as a wealth creation tax saving device.
I stole the above from Noels latest newsletter.
A86
