The Law Handbook 2024

Chapter 5.6: Superannuation 413 insurance through the superannuation fund because the fund can negotiate a cheaper price for volume. Often, insurance is available without reference to previous medical history. Look very carefully at the definition of ‘disability’ in the insurance policy as this can be the difference between obtaining an insurance payout and the benefit being refused. Also, moving from one insurance policy to another can mean that the new insurer may require a health check or a health disclosure. 4 Services and benefits: The fourth thing to consider is the other type of services or benefits available. Some funds offer financial products or discounts. Money in the fund Tax concessions Since 1 July 2017, amaximumamount canbe held in the retirement phase (in which earnings and capital gains are not taxed). That figure is now $1.9 million (or less if the person’s super balance cap is less) (ignoring investment gains and losses). Any excess must be held in the accumulation phase (where earnings and capital gains are taxed, but on a concessional basis). Since 1 July 2017, the earnings from assets supporting a transition to the retirement income stream are taxed. However, the income stream remains tax free for people over 60 years. Generally, benefits paid are only taxed if the beneficiary is below 60 years. However, the tax on benefits paid is payable only on retirement or earlier payout of benefits. Superannuation funds have the advantage that they pay tax in the accumulation phase of 15 per cent on their income and 10 per cent on their capital gains on assets held for 12 months. This means that money in superannuation should growmore quickly than money invested in a person’s own name, so long as the person is paying a marginal rate of tax above 15 per cent. A person’s tax file number must now be given to the superannuation fund in order to avoid being taxed at the top marginal rate. Taking benefits At age 65, a person can take their superannuation benefits. Before that age, a person must satisfy a ‘condition of release’ (or transition to the retirement stream) to take superannuation benefits. Between ages 60 and 65, resigning from a job is a condition of release. If the person has reached ‘preservation age’ (ages 55 to 60, depending on the person’s birth date), a condition of release is that the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either full-time or part-time (at least 10 hours per week). Taxation If the beneficiary is aged 60 or more, all pensions paid from a taxed source are tax free. If the beneficiary is over 60 and retired, or over 65, lump sums paid from a taxed source are tax free. If the pension is not paid from a taxed source (e.g. certain government pensions) certain elements of the pension are taxed at a concessional rate. If the beneficiary is between their preservation age (see ‘Preservation’, below) and 60, or below their preservation age, taxation is complicated. For people between their preservation age and 60, a lump sum of up to $235000 of the taxable component is tax free. Further details are available in Withholding Schedule 12, ‘Tax Table for Superannuation Lump Sums’, available at www.ato.gov.au/rates. It is no longer possible to access the concessional and non-concessional components other than in the proportion they bear to the whole of the fund (unless the fund is split into two funds). The taxation of benefits can also be delayed by ‘rolling over’ the benefit into a particular type of fund, and letting it accumulate, rather than taking the benefit as soon as it is available. Pensions and lump sums If an individual takes benefits before they turn 60, a portion is taxable at the marginal rate, less a 15 per cent tax offset if aged 55 or over. Any pension is allowed that meets certain minimum standards relating to minimum annual payments (e.g. the annual payment for a beneficiary aged 55–64 must be at least four per cent and no more than 10 per cent of the account balance). Superannuation is not counted in the Centrelink assets or income test until a superannuation pension is paid. It is important to get professional advice about this complex area. Regulation of funds Almost all private sector superannuation funds are regulated by the Superannuation Industry (Supervision)