It is now possible to make use of your superannuation to draw down for a deposit for a home:
So how does it work?
Starting from 1 July 2017 you can make a voluntary contribution to your superannuation fund of up to $15,000 per year and up to a total of $30,000 which you later draw down (less taxes and plus earnings) to make a deposit on your first home. Amounts can be withdrawn after 1 July 2018.
As an example:
Samantha earns $60,000 and wants to buy her first home. Using salary sacrifice through her work she annually directs $10,000 of before tax income to her superannuation fund. When the fund receives the $10,000 it will take out the tax on contributions (15%) of $1,500.
If she had have not made the voluntary contribution she would have paid tax on the $10,000 at 34.5% which is her marginal rate (32.5c for each $1 over $37,000) plus the Medicare levy of 2%. So she would have paid tax of $3450. So although she has put an extra $8,500 ($10,000 less the tax $1,500) into super her take home pay has only reduced by $6,550 or $125 per week.
She repeats this for another 2 years until she has reached the $30,000 maximum amount.
At the end of the 3 years she can withdraw from her super fund $25,500 of contributions plus what the Government allows as earnings on the money, currently the rate that is applied is 4.78%. So in this example it would be $27,380.
There is another withdrawal tax amount when she takes the money out of super, which is her marginal rate (including Medicare levy) less 30%. So 4.5% (32.5c for each $1 over $37,000 plus the Medicare levy of 2%). The tax payable $1,232 on withdrawal.
Samantha would end up with $26,148 for her deposit as opposed to saving the money and earning bank interest of 2% she would have approximately $20,043 to put towards the house purchase.
So she is $6,105 better off by using this strategy.
There is an online estimator that you can use for your own situation:
You can see that it is not the simplest process but it certainly might boost your savings for your first home.
You can also withdraw from super contributions that you have made but not claimed a tax deduction for. Or you are self employed and have made personal contributions to super.
This is general information only and not intended as advice. Please see a financial advisor for advice specific to your situation.
While the term of superannuation is often in the media, and most of us have some, do we know how it works and how it will benefit you?
Your super will fall into one of the following categories:
1. Industry based superannuation, these are the likes of REST, HESTA, MTAA, etc. These funds were set up for specific industries and if you work or have worked in any of the related industries you will most likely have or have had super in these funds.
2. Corporate or Public-Sector Funds, these were created for Government or large company’s employees.
3. Retail Funds, these were set up by financial institutions and insurances companies, for investors to save for retirement and the likes of Colonial First State (Commonwealth Bank) One Path (ANZ) AMP Flexible Super BT Super for Life (Westpac) etc
4. Self-Managed Superannuation Funds – these are superannuation funds you can set up and run yourself.
While there are different categories of funds they are all set up and run with the goal of providing for your retirement.
So how do they work for you?
Your employer contributes a minimum amount of super for you currently this amount is 9.5% of your income and if you are lucky they may contribute additional amounts. Or you could be contributing some yourself. If you are self employed you may be making contributions on your own behalf.
Once these contributions are received into your super the fund will pay tax on 15% of the contributions.
The net amount is then available for investing by the fund managers or trustees:
Where they invest it for you will depend on a number of things:
1. The investment options available under your specific fund.
2. Your risk profile, you should complete a risk profile to determine your tolerance to risk in line with your investment objectives and your time horizon to retirement.
3. If you have a Self Managed Superannuation Fund it should be in line with your investment strategy.
The income from these investments will be credited back to your superannuation account, after the investment managers have charged a fee for their services. Its important not to get too hung up on the performance of your fund in the short term, history shows that no one fund stays in the top few consistently over a 3, 5 or 10 year period. So keep an eye on your fund and check it regularly and if it is underperforming year and year it might be time to look for an alternative.
You will also generally pay an administration fee and sometimes a trustee fee.
Your fund up until retirement will pay tax on the net investment earnings at 15%.
You may also be able to access Life, total and permanent disability insurance and Income Protection Insurance under your super, and if this is the case the premiums will be deducted from your Member Balance.
As of the end of September 2017 all funds with the exception of Self Managed Superannuation Funds need to disclose all their costs, and you can find the costs for your own superfund in their Product Disclosure statements which are found on each funds website. There are also websites where you can check the fees and compare your superfund such as Canstar and SuperRatings.
So what happens when you want to access your super.
Most of us will not be able to access our super until we are 60. Or those who want to work a little longer it could be later. Then we can either take a lump sum or draw down an income stream. If you decide to take an income stream you will need to draw out a minimum of 4% of your balance each year. The advantage of doing this (under the current legislation) is that your fund now goes into pension phase and all earnings are no longer subject to tax. In addition, the income that you draw is not subject to tax either. Pretty nifty hey?
This is a basic overview of how superannuation works today in Australia, let me know if you would like to know more.
This article is intended as a source of general information only and no reader should act on any matter without first obtaining professional advice
So you have your dream business idea and are ready to start planning, it’s very exciting, but there are a few items though, that are often overlooked and can add thousands of dollars to your start up budget.
1. Bank Fees – not only do you need to take into account your regular account keeping fees, you will need to allow for EFTPOS fees and if you are dealing in international currency for instance in buying your stock you will really open a can of worms:
So today for instance, opening a business account with one of the big banks, will cost you from $10 per month, but if you get EFTPOS facilities they will generously waive the fee.
We will need an EFTPOS machine which will set us back $60 per month, this will include the first $3,000 of transactions for free. So on a business with say $200,000 in sales, our EFTPOS fees will be $3,180 per year!!!
Now in today’s global world it is likely that you will be purchasing some stock from overseas, and there are layers of costs here. Firstly the Foreign Exchange Rate you see quoted in the media will not be what you pay. And then there are transfer fees and then you may also pay for the privilege of sending it through to your supplier’s bank.
If we want to pay our US supplier for $5,000 AUD stock, today looking again at the same big bank website it would cost us as follows:
Exchange Rate quoted on sending money: $0.7869 AUD vs todays actual Exchange Rate $0.750556, this would cost us $6,968, as opposed to $6,662 at today’s actual rate: An additional $306 or 6%. On top of that you will have the transfer fees which start at $11 per transfer and then a fee for the bank receiving the funds of in our case the USA, which would be $37. So on one transaction of $5,000 you would pay an additional $354 in fees.
2. Retail Shop Lease – In QLD you are required to obtain both a Legal Advice Report and a Financial Advice Report before you enter into the Lease of a retail premises. The cost of these reports will vary but you would be looking at upwards of $1,000. In other states you may need provide a copy of your business plan, cash flow or Profit and Loss to prove you can pay the rent. In addition the lease may stipulate different levels of insurance, that you may not have been aware of.
By keeping in mind these things when setting up your business, you will avoid some unnecessary stress and financial burden.
This article is intended as a source of general information only and no reader should act on any matter without first obtaining professional advice.
Michele Purvis is an advisor with over 30 years experience working in the accounting and financial services industry helping clients to define and create their wealth.