We have found that one of the areas regularly overlooked by contractors is their Superannuation, specifically, that one of the primary attractions of Superannuation is the favourable taxation environment.
Many contractors simply avoid thinking about it as it has an air of complication about it. We find a lot of contractors simply put it in the ‘too hard basket’. That’s where CXC Financial Partners come in.
Taking a look at the simple details. If we invest money in our personal name, any investment earnings are taxable in our hands. Our personal tax rate will dictate the actual amount of tax we will pay. This may be anywhere from 0% to 45%, depending on our total taxable income. If you are unsure as to your personal tax bracket, the Australian Tax office provides tables at: Individual Income tax rates
However, if we have money invested in the superannuation system, the earnings our super fund receives, are generally taxed at a maximum rate of 15%. Of further benefit, if our super is held in what’s known as the ‘retirement phase’, the super fund will generally pay 0% tax on its investment earnings.
Consider a simple example – we have a superannuation account that is in the accumulation phase (that is, it is not paying a pension to the member). The fund invests our super savings and the fund receives income (dividends, interest or rent, depending on how the money is invested). The investment earnings are included as income of the super fund and the fund will pay tax at a rate of 15%.
In reality, most super funds will actually pay less than 15% tax as the fund may be entitled to tax deductions for expenses and may receive ‘franking credits’, where the super fund has invested in Australian shares.
Let’s take the same example but this time we will assume the super fund is now paying pensions to its members.
The income the super fund earns on the investments supporting pension payments is tax free to the super fund. But it gets even better that that.
Where the super fund paying pensions invests in Australian shares, the fund will also receive a cash refund of the franking credits.
Let’s assume a super fund receives a dividend of $1,000 from an investment it holds in an Australian company. For the sake of this exercise, we will assume the dividend is ‘fully franked’. This means that the company has already paid $428 tax on its profit before paying the dividend.
When our pension paying super fund receives its $1,000 dividend, it will also receive a ‘franking credit’ of $428. When the super fund lodges its tax return it will declare total income of $1,428. The fund pays tax on $1,428 but receives a tax credit of $428 to use to offset the tax otherwise payable.
In this example, the super fund will not only pay no tax because it is in the retirement phase, but it will also receive a refund from the tax office of $428, thereby further enhancing the returns available to its pension members.
I realise this sounds too good to be true – but it reflects the way taxation of super funds works in Australia today.
However, this may not always be the case!
The Federal Opposition has announced they intend to make changes to cash refunds of excess franking credits. How individual taxpayers will ultimately be affected will depend on any exemptions, and the ultimate direction any legislative changes take.
With so many Superannuation products available in the marketplace, are you sure that what you have is suitable for you? If you have any questions around where your funds are invested, how your investments have performed or what level of fees your being charged, and, you have made a decision to be active and committed to solving your Superannuation equation, then CXC Financial Partners has a special offer for you!
A Superannuation specialist from CXC Financial Partners will conduct a Superannuation review to ensure you have a great understanding of where your Super is held. There is no fee attached to the review itself and no obligation. The review is designed to:
- Give you a full understanding of your current product.
- Compare your current product against other similar options
- provide you with peace of mind knowing much more about your Super!
How to book a review
To book your no obligation, no fee review simply follow the instructions:
- Use the contact us page on our website: cxcfp.com.au
- Complete your name, email and mobile number as required
- In the message section write:
‘I would like a no fee, no obligation Superannuation review, please contact me on the details I have provided’
- A member of our team will be in touch to book your review.
If you’re ready to take control of your financial future, we’re ready to assist. With access to in-house experts in Financial Planning, Property, Mortgages, Tax and Accounting, our holistic approach has your financial well-being covered. We’ll help you define your goals and prioritise what’s most important for your future.
To take control in 2019 and activate your prosperity, contact our team on 1300 925 081 or via our contact form for a no obligation and confidential discussion.