Funding Your Retirement in Australia
Superannuation is a scheme to help fund your retirement after employment in Australia. There are different ways you can boost your retirement nest egg with super:
Employer contributions. If you're an employee, your employer has a legal obligation to make concessional contributions on your behalf to a complying superannuation fund. If you're self-employed — or substantially self-employed — you can also make concessional contributions. Concessional contributions are contributions you make to a complying super fund that qualify for a tax deduction; and are concessionally taxed in the super fund at the rate of 15 per cent. There are caps to restrict the amount of concessional contributions you can make each year.
Non-concessional contributions. You can make further contributions to your super, known as non-concessional contributions. Non-concessional contributions do not qualify for a tax deduction and are treated as capital contributions.
There are caps to restrict the amount of non-concessional contributions you can make each year, and if you're aged between 65 and 74 years, you'll need to satisfy an employment test before you can make a non-concessional contribution. The Federal Government has also introduced a number of tax incentives to encourage low income earners make a contribution to a complying super fund.
Self-Managed Super Funds (SMSFs). You can select your own superannuation fund or retirement savings account to fund your retirement. One popular option is to set up and manage your own self-managed superannuation fund (SMSF). If you do this, you must satisfy a number of stringent tests. Otherwise, the fund could be treated as a non-complying super fund and become liable to pay a 47 per cent rate of tax.
During the superannuation fund's accumulation phase, earnings from investment activities and capital gains on disposal of CGT assets are concessionally taxed at the rate of 15 per cent. During the accumulation phase you can't access your benefits until you satisfy a condition of release, such as when you reach your preservation age and retire, or suffer physical or mental ill-health.
When your superannuation fund converts to the pension phase, all income and capital gains your fund derives to fund pension payments are exempt from tax. Superannuation pensions payable to members when they turn 60 years of age are exempt from tax and excluded from their assessable income. If you're under 60, the pension is liable to tax at your marginal rates but you can claim a 15 per cent tax offset.
One option you could consider is a transition to retirement pension, where you can receive a superannuation pension and still remain gainfully employed on either a full-time or part-time basis. To qualify for this concession you'll need to have reached your preservation age (currently 55 years), and you must elect to receive a non-commutable pension. Under this arrangement the pension must fall between 4 per cent and 10 per cent of the balance in your superannuation fund, and the pension is recalculated at the beginning of each financial year.
In the event of your death under the CGT provisions, death doesn't constitute a disposal of your CGT assets but your beneficiaries may be liable to pay CGT on their subsequent disposal.