News/Blog

Splitting Superannuation

Traditionally, at the end of the day there is a significant imbalance in the amounts within husband and wife superannuation accounts due, of course, to the stereotypical roles of breadwinner and homemaker for much of their respective working lives.

The introduction of spouse superannuation contribution splitting some years ago was advantageous for two reasons:

  • effectively it meant a couple could have twice as much in low taxation superannuation; and
  • double the amount which could be withdrawn tax free!

With the capping of contributions to superannuation, the amount which can be held in superannuation is unlimited and in our opinion the next couple of decades will see balances swell to $millions as the younger generations realise 15% taxation is a most attractive tax rate for investments, with proceeds tax free on attaining 60 years of age.

While concessional (deducted) contributions are capped at $25,000 or $35,000, depending on age, we would expect the capping to be relaxed over the next year or so.  Further, $150,000 per annum may be tipped into superannuation on a non concessional (undeducted) basis.

Returning to superannuation splitting, the after tax concessional contribution (i.e. 85%) may be transferred each year to your spouse to maximise the available balance.  Between 55 and 60 years of age, both would then be able to withdraw the first $180,000 each of the taxable component on a tax free basis!

Of course, the more funds that can be placed in superannuation, the better the ultimate outcome.

Redundancies

As the economy remains soft and redundancies/retrenchments seem to be the order of the day, particularly in the mining and its service industries, it is topical to reflect on aspects of redundancy from the perspective of the employer.

Employer

A redundancy occurs when the employer determines a position is superfluous and does not need to be filled; this may arise, for example, because of:

  • new technology
  • declining sales
  • restructure, merger or takeover

As an employer you may be subject to the Fair Work Act, which covers employees including:

  • all people employed by companies (Pty Ltd or Ltd)
  • all people employed in VIC, NT and the ACT
  • all people employed by the Commonwealth or a Commonwealth authority
  • waterside employees, maritime employees or flight crew officers employed in connection with interstate or overseas trade or commerce
  • all people employed by sole traders, partnerships, other unincorporated entities and non-trading corporations in NSW, QLD, SA and TAS.

Should the Fair Work Act apply to you as an employer you will not, however, be required to make redundancy payments in the following circumstances:

  • the employee has less than 12 months of continuous service
  • the employee is employed in a small business of less than 15 employees
  • the employee was terminated because of serious misconduct
  • the employee is casual
  • the employee is an apprentice
  • an industry-specific redundancy regime already applies

The Fair Work Act prescribes payments to be made in the case of redundancies, but genuine redundancy payments to employees are concessionally taxed (tax-free) in the hands of the employee, to the following extent:

Financial Year

Flat Amount

Amount for each year of completed service

2013/2014

$9,246

$4,624

2012/2013

$8,806

$4,404

The redundancy payee must be under 65 years of age at the time of the arm’s length payment and there should be no re-employment of the redundant employee; nor should a “redundancy” payment be in relation to the termination of a fixed period engagement.

Read more…

Proposed Tax Changes Ditched

Prior to the recent election, the then government announced tax changes which would have been introduced had it been returned.  The government has not wasted much time in rejecting the proposed changes:

  • Fringe Benefits Tax – the plan to abandon the statutory formula method of calculating taxable value of benefits will not be proceeded with!
  • Superannuation fund income >$100,000 – the proposed increase in income tax to 30% in respect of income over $100,000 has been axed.
  • Work related education expenses – a cap of $2,000 was to be introduced but fortunately good sense prevailed and this also was rejected.