Superannuation Phases:

There are three main stages for any superannuation fund; contribution, accumulation and payment stage. Superannuation tax planning usually requires a long-term approach. This may require the taxpayer to adopt an appropriate and combination of strategies at the contribution and accumulation stage for instance by having salary sacrifice, spouse contributions and strategic asset investment to maximise fund assets and earnings. Additionally, appropriate strategies will be required at the payments stage which may involve by taking benefits in the most tax-effective form, such as a combination of lump sum payments and income streams. Superannuation generally receives preferential tax treatment across these three stages. The rationale for providing tax concessions on superannuation is a reflection of the wider social policy of encouraging individuals to fund their own retirement. Obtaining holistic legal advice from an experienced Superannuation and Taxation Lawyer can assist you in managing your superannuation throughout these stages.

There are taxation arrangements applicable to superannuation funds, concessions for making superannuation contributions and limits on the concessional treatment of contributions. There are various taxation arrangements applicable to the other entities which make up the Australian superannuation system such as approved deposit funds, pooled superannuation trusts, retirement savings accounts and first home saver accounts. For Australian non-complying superannuation funds, all of their taxable income is taxed at 45% while special taxation rules apply to foreign superannuation funds. Solid financial and legal advice in managing your superannuation can also assist you in the timing and structure of your superannuation to ensure that they meet your financial goals that may include tax minimisation, wealth accumulation and payment structuring.

The first stage is the contributions stage in which payments are made by a member into the fund or on behalf of a member to a superannuation fund. All earnings of the fund or RSA from that date, are preserved benefits and the contributions may be eligible for deduction or tax offset or other tax concessions for the contributions.

The second stage is accumulation or the growth phase which refers to the stage in which the member is amassing a superannuation investment portfolio in the anticipation of funding their retirement at some point in the future. In this stage the member has not satisfied a relevant condition of release; or the member has satisfied a relevant condition of release but no benefit has been paid in respect of the superannuation interest, and no action has been taken by or for the member under the governing rules of the fund to cash any benefit that the member is entitled to be paid as a result of satisfying the condition of release.  At this stage the growth of your account depends on the amount of contributions that you place into the account plus the growth of those contributions then less any taxes and fees or potential negative returns on your investment. The defining characteristic of the accumulation phase is that all contributions are essentially ‘locked away’ or preserved until the retirement of the member.

The last stage is the benefits/payment stage which is also referred to as the pension stage. This period of superannuation is when an individual reaches their preservation age and uses those superannuation funds held in their account (currently in accumulation phase) to purchase an allocated pension which is an account that pays an income stream to its owner. There are two typical types of income streams that can be paid to the owner which are; non-commutable income stream. The first type is, where the income stream or the pension has commenced while the member is still working and is aged between 55 and 65. The key defining characteristic of this type of pension is that any income payments must be made between the minimum and maximum allowable levels. The second type of income stream is the Standard Allocated Pension: This type of income stream is applied when the individual is aged 55 or older and no longer working or alternatively when the individual is 65 years  or older regardless of whether or not he/she is working. The key benefit if the allocated pension is the tax treatment of it. In brief while any funds are held inside the allocated pension regardless of which one, there is no tax on any of the earnings of the investments. Once the individual is over the age of 60 the current rules do not see any tax paid on any of the actual income payments out of the pension either (please note that there is tax payable for pension payments under the age of 60 depending on the size of the taxable component of the fund).

 If you would like further information or wish to discuss managing your superannuation with our experienced legal and financial staff please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au.

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