1. Superannuation Who is presenting, where are they from? Date? Janaury 2012

2. 2 Agenda 1.What is super? 2.Contributions 3.Taxation of earnings within super 4.Withdrawals

3. 3 1.What is super? 2.Contributions 3.Taxation of earnings within super 4.Withdrawals Agenda

4. 4 Super is a tax structure, not an investment!  The government provides various tax incentives for contributing/maintaining funds in super  The catch is that these funds cannot be accessed until you ‘meet a condition of release’

5. 5 Overview of the super system 3 prongs of Australia’s retirement savings system  Compulsory super (Superannuation Guarantee)  Voluntary savings (Including other types of contributions to super)  Age pension 2 ‘phases’ of super  Accumulation phase  Income stream phase (once condition of release is met including transition to retirement)

6. 6 1.What is super? 2.Contributions 3.Taxation of earnings within super 4.Withdrawals Agenda

7. 7 Who can contribute to super?  Anyone under 65  Between 65 and 74 (‘work test’ required)  Age 75 and older (only mandated employer contributions allowed)

8. 8 What types of contributions? Concessional contributions  Compulsory (SG)  Voluntary (Salary sacrifice and personal concessional) Non-concessional contributions  Personal  Spouse  Government co-contributions Other  CGT exempt  Personal injury

9. 9 Contribution limits – concessional  More important to start salary sacrificing earlier than ever before!  9% compulsory super counts towards this concessional cap  Transitional arrangements Concessional contribution cap2011/12 2012/13 onwards Under 50 years old$25,000$25,000* Over 50 years old$50,000$25,000*

10. 10 Salary sacrifice under 50’s Income Superannuation Guarantee Maximum salary sacrifice Maximum sacrifice percentage $100,000$9,000$16,00016.0% $125,000$11,250$13,75011.0% $150,000$13,500$11,5007.7% $175,000$15,750$9,2505.3% $200,000$15,775^$9,2254.6% * Ordinary time earnings (excludes SG) ^ Employers are obliged to pay SG only up to $43,820 pq/ $175,280 pa (2011-12)

11. 11 Salary sacrifice over 50’s Income* Superannuation Guarantee Maximum salary sacrifice Maximum sacrifice percentage $100,000$9,000$41,00041.0% $125,000$11,250$38,75031.0% $150,000$13,500$36,50024.3% $175,000$15,750$34,25019.6% $200,000$15,775^$34,22517.1% * Ordinary time earnings (excludes SG) ^ Employers are obliged to pay SG only up to $43,820pq/ $175,280 pa (2011-12)

12. 12 Contribution limits – non-concessional  Personal contributions capped at $150,000 pa  If under 65 you can bring forward 2 years of cap and contribute up to $450,000 $150,000 30 June 201130 June 201230 June 201330 June 2014 $450,000 $0 $450,000 $0 30 June 2015 $150,000

13. 13 Government co-contribution  Co-contribution up to $1,000, dollar for dollar match  Income* up to $31,920 for full benefit or up to $61,920 for partial  A number of criteria including:- –Make a non-concessional contribution –10% of income from employment or business* –Must lodge a tax return –< 71 years old (at end of financial year) –Not a temporary visa holder (exceptions apply) If eligible, what could be better than a 100% return! * ‘Income’ is assessable income (i.e. before deductions) plus a couple of add backs such as salary sacrifice and reportable fringe benefits.

14. 14 Spouse contribution tax offset  Tax offset up to $540 for contribution of $3,000  Spouse income up to $10,800 for full < $13,800 for partial

15. 15 Other contributions  CGT exempt contributions for small business owners (up to $1,205,000 lifetime limit 2011-12)  Personal injury contributions (cap is compensation amount for personal injury) 15

16. 16 Example salary sacrifice vs. non-concessional contribution After-tax contributions Salary sacrifice before tax Salary excluding SG$75,000 Salary sacrifice amount$0$10,000 Net salary$75,000$65,000 Income tax, Medicare, Flood levy*($17,300)($14,100) After-tax salary$57,700$50,900 Net super contributions($8,500) Net cash flow$49,200$50,900 Net benefit$1,700 * Flood levy applies only for 2011-12

17. 17 1.What is super? 2.Contributions 3.Taxation of earnings within super 4.Withdrawals Agenda

18. 18 Choose your tax rate! 45% - Top marginal rate + 1.5% Medicare Levy Discount of 50% on capital gains 30% Company tax rate No CGT discount 15% on earnings and deductible contributions 10% on capital gains - CGT discount of 33-1/3 % Tax free earnings within super when drawing a pension Tax free pension payments once you turn age 60 15% tax offset on pension payments if over 55 and under 60 Individual 45% Company 30% Super 15% Pension 0%

19. 19 Tax effectiveness of super IndividualCompanySuper Start$500,000 10 years$1,084,548$1,165,819$1,244,446 CGT$98,567$134,556$47,243 Net amount$985,981$1,031,263$1,197,203 Assumptions:Income 3%pa, 100% franked Growth 5%pa Individual taxed at 46.5% Company rate 30% Super Fund 15% income/10% Capital Gains tax Income after tax reinvested

20. 20 1.What is super? 2.Contributions 3.Taxation of earnings within super 4.Withdrawals Agenda

21. 21 Conditions of release  To access funds from superannuation via a lump sum or income stream a condition of release must be met  There are various ‘pre retirement’ conditions of release including death, permanent incapacity and terminal illness.  The retirement conditions of release are:- –Over preservation age (current 55), terminated gainful employment and not intending to seek gainful employment in the foreseeable future –Genuine termination of a gainful employment arrangement after attaining the age of 60 –Attaining the age of 65

22. 22 Date of birthPreservation age Before 1 July 196055 1 July 1960 to 30 June 196156 1 July 1961 to 30 June 196257 1 July 1962 to 30 June 196358 1 July 1963 to 30 June 196459 After 30 June 196460 Preservation age

23. 23 Components of superannuation  A superannuation account consists of 2 components –Tax free component –Taxable component  How these components are determined is often complex  Any withdrawals from superannuation including the commencement of an income stream are paid in proportion between the tax-free and taxable components

24. 24 Additional pre-retirement condition of release (income stream only) Requirements  Must have reached your preservation age  Account based pension (allocated pension)  Pension payment: between 4% -10%*  Non-commutable Strategies  Income swap  ‘Replace’ income as a result of moving from full time to part time employment  Pay off a mortgage sooner  Other variations * The Government has allowed 75% reduction for minimum payments for 2011-12, 2012-13

25. 25 Taxation of super components  As the name suggests, the tax-free component is tax free  The taxable component (element taxed), when withdrawing super as a lump sum Element taxed in the fund AgeSuperannuation lump sum tax rate* 60 and overNil Preservation age – 59First $165,000Nil Amounts over $165,00016.5% Below preservation age21.5% * Includes Medicare excludes Flood Levy

26. 26 Age of pensioner% of pension capital* Under 654% 64 – 745% 75 – 796% 80 – 847% 85 – 899% 90 – 9411% 95 or more14% Important:  Maximum for Transition to Retirement (TtR) is 10%  No Pro-rata maximum on TtR!  75% reduction applies to the minimum income payment for the 2011/2012 and 2012-13 financial years. Pension minimum payment limits (cont.)

27. 27 Taxation of income streams  Tax-free portion is tax free  Taxable portion AgeTaxed element in the fund 60 and overTax free Preservation age – 59 Marginal tax rates* 15% tax offset Below preservation ageMarginal tax rates * A 15% tax offset available calculated on the taxable amount

28. 28 Example of lump sum withdrawal  Bernard is 56 years old with a superannuation balance of $400,000  The tax-free portion of his balance is $50,000 and the taxable portion $350,000  He has not made any superannuation withdrawals previously  How much tax will he pay if he withdraws $200,000 as a lump sum (ignoring Medicare levy)?  Withdrawal occurs in proportion: $50,000 / $400,000 * $200,000 = $25,000 is tax-free component, therefore $175,000 is taxable component  Tax-free component is tax free  First $165,000 of taxable component is taxed at 0%, remainder taxed at 16.5%  $10,000 * 0.165 = $1,650

29. 29 Example of income stream payment  Laura is 56 years old with a superannuation balance of $400,000  The tax-free portion of her balance is $50,000 and the taxable portion $350,000  She rolls the funds into a superannuation income stream, and draws 4% as an income payment on 1 July  What is assessable income that is generated from the pension in the first financial year? What is the amount of the 15% tax offset  Pension paid = 4% * $400,000 = $16,000  Tax free portion = $50,000 / $400,000 * $16,000 = $2,000, therefore taxable portion = $14,000  Therefore assessable income = $14,000  Tax offset = $14,000 * 0.15 = $2,100

30. 30 BT Portfolio Services Ltd ABN 73 095 055 208 (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers SuperWrap including SuperWrap Essentials (SuperWrap). BT Funds Management Limited ABN 63 002 916 458 is the trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to Wrap and SuperWrap (Wrap Products) is limited to distributor only. This document has been prepared and is provided solely for the general guidance of advisers and has been prepared without taking into account any individuals objectives, financial situation or needs. The information in this publication provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. This disclaimer is subject to any contrary requirement of the law. Information current as at 1 January 2012. © BT Funds Management Limited 2012.