ARTICLES ON TERMINATION DISCLAIMER: These articles are only a guide and are often outdated in a short time. Always seek professional advice before acting.
SUPER REASONABLE BENEFITS LIMITS
If your expected super payout will be over S350.000 as of 1/7/96 or your current salary is over S50.000 you are most likely eligible for a Transitional RBL. You should contact the Australian Tax Office and apply for a Transitional RBL before 30/6/96 or talk to your investment adviser.
What is a Transitional RBL and why should I apply?
Under new Taxation guidelines Superannuation taken as lump sum over $400.000 as of 1/7/94 will be taxed at non concessional rates. The $400.000 limit will be indexed by CPI but this is not applied until you actually access the money. So for anyone who places their lump sum into a rollover to take advantage of special tax treatment, this may not be until age 65, and by this time your lump sum will hopefully have grown considerably.
Note: 2005 The RBL for the year 2005-2006 is
The Government in 1995 announced that projected tax cuts would be converted into superannuation contributions. The government contribution will be 3% and is expected to extend to all Government employees. The contribution will be capped.
The cap will be 3% of average weekly ordinary time earnings (AWOTE). All employees earning less than 1.4 times AWOTE (currently $46,000) will get the 3% contribution. Above that it will reduce by 5 cents for every dollar, phasing out at 2 times AWOTE (currently $66,000) (July 1995)
It will be claimed by employees in tax returns and will be paid directly into super funds.
The Government has also announced complusory employee contribu tions. These will be 1% in 1997-98, 2% in 1998/99 and 3% in 1999/2000. This will not normally affect Commonwealth employees. It will affect minimum payments in the lump sum schemes.
Table of various contributions in plan:
Year Employer Employee Government Total
Payroll Contributes Contributes
<$1mil >$1mil
1992-93 3% 4-5% - - 3-4-5%
1993-94 3% 5% - - 3-5%
1994-95 4% 5% - - 4-5%
1995-96 5% 6% - - 5-6%
1996-97 6% 6% - - 6%
1997-98 6% 6% 1% - 7%
1998-99 7% 7% 2% 1% 10%
1999-00 7% 7% 3% 2% 12%
2000-01 8% 7% 3% 3% 14%
2001-02 8% 7% 3% 3% 14%
2002-03 9% 7% 3% 3% 15%
Note: 2005 plan was not fully implemented. Current employer compulsory contributions
is 9%.
TAX CHANGES FOR RETIREES ON 1 JULY 1994
WARNING: Tax changes occur regularly check before you act!
From 1 July 1994, new rules crucial to anyone retiring or taking voluntary redundancy were introduced. There were also significant changes to be introduced from the 1st July 1994 to Reasonable Benefit Limits Rules.
The changes to the rules will be particularly important where a retiree plans to use an annuity or allocated pension as a future income source. Allocated pensions are the fastest-growing income investment being sought by retirees. Both annuities and allocated pensions currently have a valuable tax-free component.
This is currently based on the portion of an annuity or allocated pension bought using the pre-83 component of a termination payment, any concessional or redundancy payments and any personal contributions made by the retiree to a superannuation fund for which no tax deduction was received. The latter is known as the "undeducted" contribution.
Previously, the total value of these components was divided by the life expectancy of the annuitant or pensioner with the result entitled to be received tax-free.
After July 1, however, only any undeducted contributions can be used to calculate the tax free portion. This is less generous.
Another major change which took effect from July 1, 1994, related to amounts received as a redundancy payment. Below a certain limit, redundancy payments are tax free, but cannot be rolled over. Above the limit the payment is taxed as an ordinary termination payment, but it can be rolled over. This limit has been set at $4,000 plus $2,000 for each year of service with the particular employer.
For some individuals this change could have social security implications. Previously, money in rollover funds was not counted when calculating unemployment benefits. After July 1, 1994, redundancy payments below the limit are not be able to be rolled over, affecting benefits in some cases.
SUPERANNUATION - ALLOCATED PENSIONS
What do you do with your money on retirement? We urge you to look at every avenue and a most interesting one is the allocated pension.
Allocated Pensions have been formally endorsed by the Federal Government. For those unfamiliar with the term "allocated pension", it simply means that in return for a lump sum investment you receive a flexible and secure, monthly pension credited to your bank, building society or credit union account throughout your retirement.
The allocated pension should be compared to an annuity. In both schemes you invest a lump sum to obtain a pension. With an annuity the decision is final and you are stuck with your investment and income.
With the allocated pension, you can withdraw your lump sum and change your pension. In short, it leaves you with flexibility.
Some features of the allocated pension are:
- The pension lasts until your account balance runs out, and
depends on a number of factors including the amount of pension
you withdraw each month and the investment return credited to
your account.
- Where moneys remain in the account on your death, your family
or other nominated persons can receive this benefit either in a
lump sum or pension form.
- Pension payments can be altered annually to exactly meet your
changing income and lifestyle requirements. Unlike annuities,
Allocated Pensions allow investors access to their capital at any
time.
- Allocated Pensions are also very tax-effective, paying no lump
sum tax
- Most of the pension you withdraw each month is returned to you
tax-free.
As always get advice from a specialist.
REDUNDANCY AND UNEMPLOYMENT BENEFITS
What happens when you are made redundant? Can you get on the dole? Our adviser says maybe! The answer as usual is to get some advice.
From July 1, 1991 the dole has been replaced with Job Search Allowance (for people who have been unemployed for less than 12 months) and Newstart Allowance (for people who have been out of work for more than 12 months).
The rate of benefit you will receive is determined by your age, whether you are single or married and whether you have any dependent children. Your actual entitlement is calculated under an Income and Assets Test.
The test that pays you the lowest rate is the one which applies to you. Payment is made fortnightly.
THE INCOME TEST (NOTE May 92 figures)
Married couples who do not have dependent children are entitled to receive $503/fn and can earn an extra $60/fortnight from other sources without affecting their right to the maximum benefit.
However, for each dollar of income you earn above $60 from other sources such as investment income, you lose 50 cents from your benefits until your other income reaches $140. Above $140 your benefits are reduced dollar for dollar.
For example, if your investments were earning you $350 per fortnight and you had no other sources of income as your spouse was not working, you would be entitled to receive $253 per fortnight as unemployment benefits.
As another example, if your investments were paying you $250/fn and your spouse worked part time earning $300/fn, you would only receive $53 per fortnight as unemployment benefits. See Age Pension
It should be noted, however, that the tax free portion of a superannuation pension or annuity is not regarded as income, but a return of your capital and, as such, is not counted for unemployment benefit purposes.
THE ASSETS TEST (NOTE May 1992 figures)
When you are being considered by the Department of Social Security for unemployment benefits, the department looks at the value of your assets.
Unlike the income test, there is no tapering of the payment. Entitlement to a benefit ceases if your level of assets ceases if your level of assets reaches the following level.
SINGLE PERSON MARRIED PERSON
HOMEOWNER $110,750 $157,500
NON-HOMEOWNER $190,250 $237,000
These levels of assessable assets are indexed every year in June
in accordance with the Consumer Price Index (C.P.I.). The above
levels apply from June 1991 to June 1992.See Age Pension
CERTAIN ASSETS DISREGARDED
The family home is not regarded as an asset. As a matter of policy DSS will ignore compulsorily preserved superannuation benefits for the purpose of the assets test, until pension age is reached. The capital value of superannuation pensions are also not counted under the assets test.
The rule of 72 is a rule to determine how long it takes to double your capital
no of years to double income = 72 / interest rate
WARNING: Tax changes occur regularly check before you act!
On Budget night (20/8/96) the new Liberal Government announced a complex new surcharge on superannuation. The new surcharge is 15% and applies to all employer superannuation contributions where the notional taxable income (NTI) exceeds $85,000.
Currently employer contributions are taxed at 15%. With the surcharge, all contributions above $85k can be taxed at 30%.
A sliding scale applies for notional taxable incomes over $70,000. The scale is 1% per $1000. Thus a $71,000 income will attract a 1% surcharge. The formula will be:
(NTI - $70,000) x 15
surcharge rate (5) = --------------------
$15,000 effective 20-08-96
Note: 2005 On 1 July 2005, the surcharge tax has been abolished.
WARNING: Tax changes occur regularly check before you act!
Other changes made in 1996 are:
1. Contributions: persons may now contribute to superannuation after the age of 65 years.
2. Redundancy: From 30 June 1997, lump sums from superannuation will mostly be subject to preservation. The lump sum will be restricted to the amount that you could have taken as a lump sum on 30 June 1997, indexed by AWOTE. The rest must be preserved till age 55.
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