Does Superannuation Get Taxed?

Many of you may have noticed on your post June 2018 superannuation statement that an amount has been deducted for tax.

Many people believe that they pay no tax in their super. Unfortunately, this isn’t true.

Each year your employer pays 9.5% of your salary into your nominated super fund in order to meet their Superannuation Guarantee obligations. For every dollar that your employer pays into your fund, 15% of it is taken as contributions tax. It’s worse if you earn over $300k per year when the tax paid jumps up to 30%.

If you’re a savvy investor, you’ll have your super invested in funds that earn income throughout the year. Be it interest, rent, dividends etc. These earnings don’t escape tax. They are in fact also taxed at 15%.

Of course these tax rates are well below most people’s personal tax rates. So having your money in super does mean you’re paying a lower rate. The trade - off for this is that you can’t access your money until you reach preservation age.

What does all this mean? No one likes paying tax, and tax on super is difficult to minimize as you can’t apply any personal tax deductions to your super fund.

What can I do? There are two things you can do to help. Firstly, you can invest in good quality superannuation funds that enjoy strong growth rates. It won’t reduce the tax paid but you won’t mind as much if your balance is growing strongly.

Secondly, be mindful that most high quality superannuation funds allocate part of your money to Australian based, high quality shares. These shares for the most part enjoy tax credits on the income they earn.

Income earned (known as dividends) will often have an associated tax credit that can be used by your super fund to offset tax paid on the earnings.

Understanding tax is a full time job and best left to the experts. However, you should be aware of what you’re paying and by taking a few prudent steps, do your best to minimise it.

Comments

Times are tough. How can you position yourself to minimise the impact?

The last few weeks have been extraordinary to say the least. We’re battling a world wide health crisis and we face uncertainty in many aspects of our lives. It’s true that there are simply some things beyond our control and we will more than likely see many changes to our everyday lives for the remainder of 2020 and beyond. So, what can be done? On the other side of this, many people will be left with dramatic financial stress, whether it be periods of unemployment, depleted cash reserves or battered superannuation balances. And for many, timing will be an issue. Those who were weeks ago contemplating retirement may now need to change their plans. And those that are still accumulating for retirement have more than likely just seen their investments and superannuation return to levels of 5 or 6 years ago. Essentially the clock has be wound back in one way or another. It may well be a good time to take stock and lay some foundations for when thing...

Don't Wait till you're in your 60's to see a Financial Adviser

Ask most 30-year old’s who their financial planner is and the typical response might be ‘huh?’ After all, financial advisers are for older people with plenty of money to invest, aren’t they? Well, yes, people nearing or in retirement will benefit from sound advice. But so will younger people. With the benefit of having time on their side, and with some help from an adviser, a 30-something can easily establish a wealth creation plan that can deliver a big payoff in the future. Harness compound interest It’s been called the most powerful force in the universe, and compounding returns – earning interest on your interest – can deliver dramatic results. Imagine that, at age 30, you commence a simple savings plan. You contribute $2,000 each year to an investment that delivers an after-tax return of 6% pa. After 30 years you will have contributed a total of $60,000, but your investment will be worth $158,116. The magic of compound interest will have delivered you an effortles...

Does one size fit all when it comes to Superannuation?

Super Choice – how can employers help their employees? Since 1 July 2005, most employers have been required to give their employees a choice of fund for their superannuation guarantee contributions. It is only if the employee fails to choose, or chooses a fund which cannot be used by the employer, that the employer will be able to choose the fund. Prior to this, employees essentially didn’t have a choice and they were basically stuck with the fund their employer chose for them. In the past decade since “Super Choice” was introduced, there has been a great deal of competition in the superannuation market given that employees can choose where to put their money. A competitive market is good for consumers with an almost limitless choice of highly developed options for employees to choose from. So, what does this mean for employers? Well, in the early stages of this change it was essentially an administrative burden as large companies with large numbers of staff were faced with p...

Wealth Creation Blogs Worth Sharing.

Search This Blog