Facts and Figures 2005/2006

Transcription

1 Facts and Figures 2005/2006

2 Facts & Figures 2005/2006 Tax Pages 1-14 Super Income Streams Social Security Protection Disclaimer: This information has been published by MLC Limited (ABN ) Miller Street, North Sydney NSW 2060, a member of the National group. This information was produced as an information service and without assuming a duty of care. This information is for adviser use only. It contains general information only and does not constitute financial advice and should not be relied upon as a substitute for financial or professional advice. In preparing this information, MLC Limited did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, a person needs to consider (with or without the advice or assistance of an adviser) whether this information is appropriate to their needs, objectives and circumstances. This information is based on our interpretation of relevant superannuation, social security and taxation laws as at 1 July None of MLC Limited, the National Australia Bank Limited (ABN ), any appointed investment managers or other member company in the National Group of companies, stands behind or guarantees the performance, return of capital or income, or tax status.

3 Tax Facts & Figures Contents Tax Personal Tax Rates 2 Minor Tax Rates 2 Medicare Levy and Surcharge 3 Tax Offsets 4 Corporate Tax Rate 5 Withholding Tax Rates 5 Capital Gains Tax (CGT) 5 CGT Fixed Trusts 6 CGT Non-Fixed Trusts 6 CPI Indexation Factors 7 CGT Small Business Concessions 8 Fringe Benefits Tax (FBT) 11 Life Policy Taxation 12 Employer Termination Payments 13 Pay As You Go (PAYG) Instalments 14 1 of 65

4 Personal Tax Rates Taxable Income Tax Payable (Resident)* Tax Payable (Non-resident)* 2004/2005 $0-$6,000 Nil 29% $6,001-$21,600 17% $1, % $21,601-$58,000 $2, % $6, % $58,001-$70,000 $13, % $17, % $70,001 + $18, % $22, % 2005/2006 $0-$6,000 Nil 29% $6,001-$21,600 15% $1, % $21,601-$63,000 $2, % $6, % $63,001-$95,000 $14, % $18, % $95,001 + $28, % $32, % * Plus Medicare Levy. Minor Tax Rates Eligible Taxable Income* $0-$416^ Tax Payable $417-$1,445 66% of excess over $416 Nil $1, % of entire Eligible Taxable Income* * Includes unearned income such as dividends and interest but excludes income from sources such as business, employment and deceased estates (as well as income from the reinvestment of these amounts). ^ As minors qualify for the low income tax offset (see page 4), the maximum tax-free income they can receive is $772 pa. 2 of 65

5 Medicare Levy (2004/05) Single Taxable Income Family Taxable Income Medicare Levy $0-$15,902 $0-$26,834 Nil $15,903-$17,191 $26,835*-$29,009^ 20% of taxable income between thresholds $17,192 + $29,010^ + 1.5% Tax Taxpayers eligible for Senior Australians Tax Offset # $0-$20,500 $0-$31,729 Nil $20,501-$22,162 $31,730*-$34,301^ 20% of taxable income between thresholds $22,163 + $34,302^ + 1.5% Taxpayers eligible for Pensioner Tax Offset (Non Seniors) # $0-$19,252 $0-$26,834 Nil $19,253-$20,812 $26,835*-$29,009^ 20% of taxable income between thresholds $20,813 + $29,010^ + 1.5% * The lower income limit increases by $2,464 per dependent child. ^ The upper income limit increases by $2,663 per dependent child. # For further details see page 4. Note: With the exception of imputation credits, the baby bonus and the private health insurance offset, tax offsets cannot reduce the Medicare Levy. Medicare Levy Surcharge Single Taxable Income* Family Taxable Income* Medicare Levy Surcharge $50,000 + $100,000^ + With no private hospital cover 1% surcharge on taxable income* * Plus reportable fringe benefits. ^ Increases to $101,500 where 2 children + $1,500 per additional child. 3 of 65

6 Tax Offsets (2004/05)* Shade-Out Tax Offset Max Offset Taxable Income Rate of Reduction Low Income $235 $21,600 - $27,475 $0.04 per $1.00 Mature Age Worker Tax Offset (2005/2006)^ $500 $0 - $10,000 $0.05 per $1.00 $500 $53,000 - $63,000 $0.05 per $1.00 Senior Australians # Single $2,230 $20,500 - $38,340 $0.125 per $1.00 Couples (each) $1,602 $16,806 - $29,622 $0.125 per $1.00 Pensioner Non Seniors # Single $2,117 $18,453 - $35,389 $0.125 per $1.00 Couples (each) $1,585 $15,324 - $28,004 $0.125 per $1.00 Dependent Spouse No children $1,572 $282 - $6,569 $0.25 per $1.00 Children $1,885 $282 - $7,821 $0.25 per $1.00 Private Health Insurance (2005/2006)º Oldest member age <65 30% of premium N/A N/A % of premium N/A N/A 70 40% of premium N/A N/A * See page 22 for spouse super offset and page 34 for Super Pension & ETP Annuity offset. ^ The offset phases in between $0 - $10,000. Available to taxpayers 55 and over who receive earned income from salary and wages, business income or personal services income. # The Senior Australians tax offset is available to taxpayers over Age or Service Pension age, while the Pensioner tax offset (non-seniors) is available to taxpayers below Age Pension age receiving certain taxable Government pensions and allowances. For couples that qualify, any unused tax offset can be transferred between partners. A dependent spouse includes de facto spouses, however it does not include spouses that are permanently separated (nor same sex). º This can be claimed as either a reduction of premiums, a direct payment, or as a tax offset. Only one member of the policy needs to be within the higher age bands to qualify. 4 of 65

7 Corporate Tax Rate Year Tax Rate Applicable 2001/2002 onwards 30% Tax Withholding Tax Rates Type of Payment Non-Tax Treaty Country Tax Treaty* Country Unfranked Dividends 30% 15% Interest 10% 10% Royalties 30% 10% Franked Dividends 0% 0% * These are the general rates. Refer to the specific tax treaty for confirmation. Note: Australian sourced capital gains distributed from a trust are required to have tax withheld under s98 of the ITAA The withholding rate is as per non-resident tax rates for individuals and the corporate tax rate for companies. Capital Gains Tax (CGT) Asset Acquired Individual Company To 19/9/85 Nil Nil 20/9/85 to Tax on 50% of nominal gain Tax on 100% of real gain 21/9/99* OR (CPI frozen at 30/9/99) Tax on 100% of real gain (CPI frozen at 30/9/99) From 22/9/99* Tax on 50% of nominal gain Tax on 100% of nominal gain Asset Acquired To 21/9/99* From 22/9/99* Complying Super Fund Tax on 2/3 of nominal gain OR Tax on 100% of real gain (CPI frozen at 30/9/99) Tax on 2/3 of nominal gain * If the asset was held for 12 months or less, the full nominal gain is taxable. 5 of 65

8 Capital Losses Capital losses can be offset against capital gains in any order. To minimise CGT, losses should generally be applied against capital gains in the following order: 1. Gains on assets held for 12 months or less. 2. Gains where the Indexation method is used. 3. Gains where the Discount method is used. CGT Fixed Trusts CGT will apply to: 1. Distributions of realised capital gains Trustee to determine method adopted (Discount* or Frozen Indexation)^. 2. Disposal of Units Investor has choice of: (a) Indexation or Discount* method for units acquired before 22/9/1999^; or (b) Discount* method for units acquired after 21/9/1999^. Cost Base Adjustment Applies to CGT Concession amounts distributed prior to 1/7/2001. Generally for individuals the cost base is reduced by the amount of the concession distributed.# s (ITAA 1997) * Individuals, super funds and trusts only. ^ If held > 12 months. # The cost base of the units may also be reduced by tax deferred and tax-free distributions received. CGT Non-Fixed Trusts The income flows through to investors. As a result, individual investors can take advantage of the 50% CGT discount. 6 of 65

9 CPI Indexation Factors Year March June Sept Dec * Tax * For the purposes of calculating capital gains tax, indexation has been frozen as at the September 1999 quarter. 7 of 65

10 CGT Small Business Concessions Eligibility Basic Conditions: Selling assets of business Selling shares/membership interest (Individuals or company/trust) (Individuals only) 1. $5m Net Asset Value Test 1. $5m Net Asset Value Test 2. Active Assets Test 2. Active Assets Test 3. Controlling Individual Test 4. CGT Concession Stakeholder s s (ITAA 1997) 1. $5m Net Asset Value Test For individual taxpayers*, sum the net CGT assets of: Individual + Connected Entities + CGT Affiliate (spouse or child < 18 ) Except: Company (if > 40% voting rights)^ Connected business Personal use assets Unit Trust (if right to > 40% assets only Family home income or capital)^ Ignore non-business assets Superannuation Discretionary Trust (if individual or Life policies CGT affiliate paid > 40% of income or capital # or are trustee) * This test must be performed separately for each individual claiming the exemption. ^ Owned collectively by individual and CGT affiliates. # For any of the four financial years preceding the sale of the active assets. If taxpayer is a company or trust, sum the net CGT assets of: Company/Trust + Connected Entities + Connected Individuals* Net value of Company (if > 40% voting rights)^ Except: company/trust Unit Trust (if right to > 40% Personal use assets assets income or capital)^ Family home Discretionary Trust (if company/trust Superannuation paid > 40% of income or capital # Life policies or is trustee) * By virtue of the 40% collective control test. Includes CGT affiliates. ^ Owned by first company or trust. 8 of 65

11 2. Active Assets Test Selling assets of business (Individuals or company/trust) Active Asset if: Owned by entity and used in carrying on business by entity, connected entity or affiliate (includes goodwill). Active for > 50% of its life. Selling shares/membership interest (Individuals only) Active Asset if: Company or trust is resident. Market value of underlying active assets > 80% of total assets (for at least half of ownership period of shares/interest). Tax 3. Controlling Individual Test Must be at least one controlling individual just before the time of disposal. Controller must satisfy the following: Company holds at least 50% of votes and distributions of income and capital. Unit Trust beneficially entitled to at least 50% of income and capital. Discretionary Trust entitled to at least 50% of distributed income and capital in year of disposal. 4. CGT Concession Stakeholder Extends concessions to spouse of controlling individual. Spouse must satisfy the following: Company holds company shares. Unit Trust beneficially entitled to income or capital. Discretionary Trust beneficially entitled to income or capital in year of disposal. Eligibility Specific Conditions: 15 year Plus Retirement Exemption Active assets are exempt from CGT if owned for at least 15 years where they are disposed of on retirement after age 55 or as a result of permanent incapacity. If an individual sells their shares or interest in an entity, or where a company or trust is selling a CGT asset, there must be a controlling individual for the entire period of ownership and the controlling individual is > age 55 and retiring or is permanently incapacitated. Concession limited to stakeholders control %. s & s (ITAA 1997) 9 of 65

12 50% Active Assets Reduction A further 50% exemption available to all small business owners on the disposal of active assets. A controlling individual is only required if the active asset is a share in a company or an interest in a trust. Capital losses and the general 50% Discount for individuals (see page 5)* must be applied first. Can elect not to claim this concession and instead use the CGT Retirement Exemption or Rollover. s (ITAA 1997) CGT Retirement Exemption Available to all small business owners who dispose of active assets for retirement purposes. A $500,000 lifetime limit applies to this exemption. If < age 55, the capital gain must be rolled over to a superannuation fund. If > age 55, the capital gain can be taken as cash, rolled over to super, or used to purchase an income stream. The CGT exempt component counts towards the RBL and forms part of the UPP of an income stream. A written election must be made prior to lodging the entity s tax return. If a company or trust is claiming the exemption there must be a controlling individual. The split between CGT concession stakeholders is not linked to their control %. s s (ITAA 1997) * Available to all individuals (sole traders and partners) and trusts. The asset, share or interest must have been held > 12 months. s s (ITAA 1997) Note: CGT Rollover relief may also be available on the disposal of small business active assets where replacement active assets are acquired. 10 of 65

13 Fringe Benefits Tax (FBT) FBT is a tax levied on employers on certain benefits provided to an employee at a rate of 48.5% on the taxable value of the fringe benefit. FBT Exempt Items Laptop computers Professional subscriptions & memberships Protective clothing Complying self education expenses Remuneration / financial planning advice Complying childcare arrangements Work related computer software Complying mobile phone expenses $500 in-house staff products Super contributions to complying fund / RSA* Briefcase, calculators & electronic diaries Concessionally Taxed Items Motor vehicle leases Taxable value is nil. Therefore no FBT is payable FBT is payable on the taxable value of benefit^ Tax * Subject to 15% contributions tax. ^ Taxable value is generally less than the cost of providing the benefit. Motor Vehicle Statutory Fractions Annual Total Kilometres Statutory Fraction < 15, ,000 24, ,000 40, , s9-2 (FBTAA 1986) 11 of 65

14 FBT Gross Up & Reporting Employers must separately identify the proportion of taxable fringe benefits relating to each employee. Where the aggregate value of an employee s taxable fringe benefits (with some exceptions) exceeds $1,000, the employer is required to gross up this amount by a factor of The grossed up amount (referred to as the reportable fringe benefits amount ) must be reported on the employee s Payment Summary. Exempt Employers Certain non-profit employers such as tax-exempt charities are entitled to a rebate on their FBT liability. This means that no FBT is payable on the first $17,000 (grossed-up taxable value) for each employee of a hospital and $30,000 (grossed-up taxable value) for each employee of other public benevolent institutions or rebatable employers. The employer must still report the grossed-up fringe benefit amount on the employee s Payment Summary. Life Policy Taxation Investment earnings are taxed at the corporate rate of 30%. The policies are not subject to further tax at the policy holder level if held for 10 years or more. Withdrawals before 10 years are assessed as follows: Year Assessable Portion 1-8 All accumulated bonuses* 9 Two thirds of accumulated bonuses* 10 One third of accumulated bonuses* A 30% tax offset is available on the assessable portion. For low marginal tax rate payers, any excess can be used to offset other tax payable. Additional deposits greater than 125% of the previous year s deposit will restart the 10 year period. * This is effectively the growth in the value of the policy. s26ah (ITAA 1936) 12 of 65

15 Employer Termination Payments Maximum Tax Rate Accrued Annual Leave Resignation/Retirement To 17/8/ %* From 18/8/1993 Marginal Rate* Bona fide redundancy/invalidity/early retirement All 30%* Accrued Long Service Leave Resignation/Retirement To 15/8/1978 5% at Marginal Rate* 16/8/1978 to 17/8/ %* From 18/8/1993 Marginal Rate* Bona fide redundancy/invalidity/early retirement To 15/8/1978 5% at Marginal Rate* From 16/8/ %* Unused Sick Leave Taxed as an ETP^ (see page 25). Tax-Free Redundancy Amount 2005/ /05 $6,491 + $3,246 for each $6,194 + $3,097 for each completed year of service completed year of service Balance over the tax-free amount is taxed as an ETP^ (see page 25). Tax * Plus Medicare Levy. ^ Other employer payments taxed as an ETP include payments for unused rostered days off, in lieu of notice, gratuity or golden handshake, compensation for loss of job or wrongful dismissal and invalidity. Note: Employer ETPs rolled over to a super fund/rsa are preserved. 13 of 65

16 Pay As You Go (PAYG) Instalments Generally, resident individuals, companies and super funds are required to pay PAYG instalments if they had business or investment income > $2,000 on their most recent tax assessment. Exceptions to the above include: individuals entitled to the Senior Australians tax offset; individuals and trusts with a balance on their last assessment of < $500; individuals and trusts with business and investment income of < $2,000 shown on their last tax return. Frequency of Instalments All payers of PAYG instalments are generally required to pay quarterly, however generally they can elect to pay annually if: the tax payable on business/investment income in their most recent tax assessment is < $8,000; and they are not registered or required to be registered for GST. Instalments Payment Method Due Dates Annual Notional Tax* Due by 21/10 or following the end of Instalment rate* (%) x the financial year Instalment Income^ Quarterly GDP Adjusted Notional Tax* Generally by 28/10, or 28/2, 28/4, 28/7 # Instalment rate* (%) x Instalment Income^ * Calculated by the ATO based on the most recent tax assessment. ^ Instalment Income includes most investment and business income (excluding franking credits and capital gains). Super funds must include ordinary and statutory income (includes capital gains, contributions and franking credits). # If lodging a Business Activity Statement monthly, payment is required by 21st of month following quarter end. 14 of 65

17 Super Facts & Figures Contents* Superannuation Guarantee (SG) 16 Superannuation Fund Choice 18 Portability of Benefits 20 Super Contributions Acceptance 20 Super Contributions Deductions 20 Super Contributions Spouse Tax Offset 22 Super Contributions Co-contribution 22 Taxation of Fund Income 23 Preservation Conditions of Release 23 Compulsory Payment of Benefits 24 Taxation of ETP Components 25 Reasonable Benefit Limits (RBLs) 26 SMSF Membership Rules 29 Super Investment Rules 30 In-House Asset Rules 30 Death Benefits Accrual Phase 31 * The following section relates to complying superannuation vehicles. Super 15 of 65

18 Superannuation Guarantee (SG) Minimum SG contribution rate: 9% Maximum contribution base per quarter: $33,720 SG Quarter Due Date for Due date for SG Last date for Quarterly SG Charge (SGC) if late* reduced SGC^ 1 Jul 30 Sept 28 Oct 14 Nov 27 Nov 1 Oct 31 Dec 28 Jan 14 Feb 27 Feb 1 Jan 31 Mar 28 Apr 14 May 26 May 1 Apr 30 Jun 28 Jul 14 Aug 27 Aug * The employer is required to submit a SG Statement and SGC to ATO (see page 17). ^ It is proposed that from 31/12/05 employers who miss their quarterly SG due date will, if they pay late contributions within 30 days of the due date, be allowed a reduction in their SGC liability equal to the value of those contributions. Basic SG Facts SG calculation = SG% x employee earnings base (per quarter) Employee includes any person receiving salary/wages in exchange for labour/services including directors or persons under contracts wholly or principally for labour (even if ABN is quoted). Ordinary Time Earnings (OTE) is the default earnings base. OTE includes the total of an employee s earnings for ordinary hours of work, over-award payments, shift loading and commission. Earnings base may be defined under a trust deed, industrial award or employment agreement. Earnings bases < OTE can only be used before 1/7/2008 where: defined and in use before 21/8/1991 (and never reduced) defined in an applicable award. SGR 94/4, SGR 94/1, SGR 2005/1, SGR 2005/D1 16 of 65

19 Main exemptions from SG: employees paid < $450 in a calendar month (for that month) employees aged 70 years* and over employees < age 18 working < 30 hrs/week non-resident employees paid for work done outside Australia resident employees paid by non-resident employers for work done outside Australia foreign executives who hold certain visas or entry permits employees paid for domestic or private work < 30 hrs/week employees notifying their employer not to pay SG where their accrued benefits > Pension RBL (evidence required) employees temporarily working in Australia for an overseas employer who are covered by a Bilateral Superannuation Agreement. A Certificate of Coverage is required. * Pro rata SG required for quarter when employee turns 70. s27-28 (SGAA), SGD 2003/5 Super Penalties Failure to pay SG by due date: SG Charge (SGC)* comprising: SG shortfalls basically calculated as quarterly salary/wages per employee x SG^. Nominal interest of 10% from start of quarter to later of SG Statement due date or date SG Statement and SGC submitted. Administration fee of $20 per employee per quarter. * The SGC is not tax deductible and cannot be reduced by ATO. ^ If legislated, late contributions paid within 30 days of the quarterly due date may reduce SGC. s17, s19, s31-32 (SGAA) Additional penalties: If SGC and SG Statement not submitted: General Interest Charge (GIC) from the SGC due date. GIC compounds daily until SGC and accrued GIC is paid. ATO can reduce. GIC is deductible. Non-payment/disclosure penalties: these are applied at a rate of 200% of the SGC. ATO can reduce. Further penalties may apply for false/misleading statements, avoidance, failure to provide information or failure to keep SG records. Part 7 (SGAA) 17 of 65

20 Superannuation Fund Choice From 1/7/2005, eligible employees can choose the fund to which their SG contributions are paid. If no choice is made, employers must contribute to an employer default fund (ie. a fund specified in a relevant Federal Award or, if no Award or no fund specified, to any complying fund or RSA). Eligible employees Employers must generally offer choice to all employees except where contributions are being made: in accordance with a Certified Agreement or Australian Workplace Agreement, or an applicable State Award (including a registered State agreement)* to certain public sector (Government) schemes. In limited situations employees in defined benefit schemes are not entitled to choose a fund. * Some State industrial laws may allow employees the right to choose a fund subject to certain requirements. Employers may need advice from industrial law experts if they are uncertain of their obligations or which industrial regime applies. s20, s32c, s32f (SGAA) Standard choice form (SCF)^ Must be given to eligible employees within 28 days of: 1/7/2005 for existing employees Commencement for new employees A change to the default fund (where the employee is a member) Becoming aware that a fund ceases to be a chosen fund for the employee Becoming aware that the default fund named on a SCF given to an employee cannot accept contributions from the employer A written request by an employee (unless form was provided in previous 12 months). ^ Employers are exempt from providing the SCF where, as a condition of employment, employees are required to choose their own fund and there is no default fund. Employers may, in some cases, refuse a chosen fund (eg. where employee fails to provide required details, has chosen another fund in previous 12 months, or their chosen fund becomes non-complying). Employers must still meet their SG obligations. s32n-32p (SGAA), SGA Reg 9C 18 of 65

21 Minimum death cover (employer default fund) With limited exceptions* an employer default fund must offer life insurance based on a: premium of at least $0.50 per week for members under age 56, or minimum level of cover as shown in the table below. Age range Level of insurance Age range Level of insurance 20 to 34 $50, to 49 $14, to 39 $35, to 55 $7, to 44 $20,000 Over 55 Nil Super * Key exceptions: Minimum cover is not required until 30/6/2008 if employer contributed to the fund for at least one eligible employee before 1/7/2005. The fund s insurer refuses cover (eg. due to health, occupation, hours worked etc). The fund is specified under a Federal Award, is capital guaranteed or an RSA. SGA Reg 9A Penalties for non-compliance Employers may be penalised where: SG contributions are paid to an incorrect fund at any time 2 months after receipt of an employee s valid notification. The SCF is not given to an eligible employee within the required timeframe (see page 18). The penalties are calculated as follows: Choice penalty equal to: 25% x {total quarterly salary and wages* x [9% (SG% paid to chosen fund + any SG% not paid^)]} Nominal interest (currently 10% p.a.) for the quarter on the choice penalty amount, plus Administration component of $20 per affected employee for the quarter. These penalties are capped at $500 per notice period. The ATO determines notice period. * As with the SG Charge (SGC), the choice penalty is based on salary and wages for the relevant quarter rather than the employees earnings base for SG purposes (see page 16). ^ If an employer fails to meet their minimum SG obligation in total for a quarter, then the employer is liable to pay the full SGC (see page 17), but does not pay the choice penalty. Partial payment to an incorrect fund may result in SGC and choice penalty. s17, s19, s31-32 (SGAA ) 19 of 65

22 Portability of Benefits From 1/7/2005 super fund members can rollover their accumulated entitlements at any time*. The Trustee can only refuse a member s written request where: On partial rollover, the member s remaining balance will be < $5,000; or The member has rolled over a benefit in previous 12 months. * The portability rules do not apply to unfunded public schemes, SMSF s, defined benefit fund interests and pensions (other than allocated pensions). Super Contributions Acceptance Age Requirements < 65 No restrictions apply Have worked at least 40 hours over a consecutive 30 day period during the financial year.* Mandated Employer Contributions^ Personal after-tax contributions (only) after working at least 40 hours over a consecutive 30 day period during the financial year.* Mandated Employer Contributions^ 75 Spouse Mandated Employer Contributions^ Receiving spouse < 65 (or aged between and has worked at least 40 hours over a consecutive 30 day period during the financial year.*) SIS Reg 7.04 * Contributions can then be made for the remainder of the financial year. ^ Mandated Employer Contributions include SG contributions (up to age 70) or contributions required under an agreement or award certified by an industrial authority. Super Contributions Deductions Maximum Deductible Contributions (MDC)* Age 2005/ /05 Under 35 $14,603 $13, to 49 $40,560 $38,702 Over 50^ $100,587 $95, of 65 s82aac (ITAA 1936)

23 Unsupported or Substantially Self-Employed # A tax deduction may be available on the first $5,000 contributed plus 75% of the balance up to the relevant MDC. To maximise allowable deductions, the following contributions should be made: Age 2005/ /05 Under 35 $17,804 $16, to 49 $52,413 $49,936 Over 50^ $132,449 $126,306 Super s82aat (ITAA 1936) * Limits are per unrelated employer. Age is determined at date of contribution or date of last contribution (if more than one). ^ While employer contributions required under an industrial award/determination attract a tax deduction after age 70, personal contributions and employer contributions (including those under approved industrial agreements) are only deductible if they are made to a complying super fund within 28 days of the end of the month (or, for SG, end of relevant quarter) in which the person reaches age 70. # To qualify as substantially self-employed, assessable and exempt income from eligible employment (plus reportable fringe benefits ) must be less than 10% of total assessable income (plus reportable fringe benefits). To qualify as unsupported, a person must not be eligible to receive any employer superannuation support in the financial year the deduction is claimed. An unsupported person may include a spouse receiving only spouse contributions. People < 18 must derive eligible employment or business income in the year in which the deduction is claimed (in addition to being self employed or substantially self-employed). Note: If eligible for a co-contribution (see page 22) a person will not be able to claim a tax deduction for their personal contributions. Deductibility restrictions may also apply to personal service entities. s82aas (ITAA 1936) s26-80, s85-25, s86-75 (ITAA 1997) 21 of 65

24 Super Contributions Spouse Tax Offset* Spouse s Assessable Max. Rebatable Max. Rebate Income (AI)^ Conts. (MRC) 18% of lesser of: Less than $10,800 $3,000 MRC or actual conts $10,800 - $13,800 $3,000 - (AI^ $10,800) MRC or actual conts Above $13,800 $0 $0 s159t (ITAA 1936) * To qualify for the offset each spouse must be an Australian resident for tax purposes when the contribution is made. If the contributor is entitled to an employer deduction for the contribution, the spouse tax offset does not apply. Spouses do not include same sex partners or those permanently living apart (see page 20 for contribution rules). ^Plus reportable fringe benefits. Super Contributions Co-contribution* Assessable Personal Co-contribution Income (AI)^ contribution available Less than $28,000 Any amount Personal contribution x 1.5 (max $1,500) $28,000 - $58,000 $0 - $1,000 An amount equal to the lesser of: Personal contribution x 1.5, or $1,500 - [0.05 x (AI^ - $28,000)] $28,000 - $58,000 $1,000 + $1,500 - [0.05 x (AI^ - $28,000)] Above $58,000 Any amount Nil * To qualify for a co-contribution a person must make personal after-tax contributions; receive at least 10% of their assessable income plus reportable fringe benefits from eligible employment; lodge an income tax return; be < age 71 at the end of the financial year; and not be a temporary resident for any part of the year. ^Plus reportable fringe benefits. 22 of 65

25 Taxation of Fund Income* Accrual Phase Taxable contributions 15% Earnings 15% Discount Capital Gains (if applicable) 10%^ s274 (ITAA 1936) Pension Phase Income attributable to current pension liabilities Tax Exempt (subject to actuarial certification) # s273a, s273b, s282b, s283 (ITAA 1936) * Special income is taxable at 47% (eg. private company dividends, non-arm s length income and specified trust distributions). ^ Refer to page 5. # This is not required for funds paying segregated allocated pensions and term allocated pensions only. Preservation Conditions of Release Include: Retirement after preservation age (55 to 60 see page 24) Termination of employment after age 60 Attaining age 65 Permanent incapacity (evidence required by Trustee/Provider who must make determination) Compassionate grounds (approved by APRA/ATO) Upon death Financial hardship (receipt of Centrelink benefits for 6 months consecutively or 9 months cumulatively if > 55) Upon permanent departure from Australia for certain temporary residents holding a specified class of visa. Persons not meeting a condition of release, but over their preservation age, may start a non-commutable income stream (see page 40). Super SIS Regs Schedule 1 Note: On termination of employment at any age, restricted non-preserved benefits become unrestricted non-preserved (provided employer has contributed to the fund). 23 of 65

26 Increase to Preservation Ages Date of Birth Preservation Age Before 1 July July June July June July June July June July 1964 or after 60 SIS Reg 6.01 Compulsory Payment of Benefits Age Requirements 65 - < 75 Member not gainfully employed for at least 240 hours in the previous financial year (ending 30 June)* 75+ before 1/7/2004 Member ceases to be gainfully employed for at least 30 hours each week* 75+ after 30/6/2004 Benefits to be paid immediately* ATO ID 2005/112 SIS Reg 6.21 * Members are not required to cash out their Post-65 mandated employer financed benefits (ie. Superannuation Guarantee and authorised award contributions received after age 65 plus related earnings) until such time that mandated contributions are no longer required to be made. 24 of 65

27 Taxation of ETP Components Component Undeducted Concessional Tax Treatment Tax Exempt 5% at Marginal Tax Rate* Pre 1/7/83 5% at Marginal Tax Rate* Post 30/6/83 (taxed) Under 55: 20%* Over 55: First $129,751^ at 0% Excess at 15%* Post 30/6/83 (untaxed) Under 55: 30%* Over 55: First $129,751^ at 15%* Excess at 30%* Excessive Post 30/6/83 taxed element: 38%* Balance of excessive component: 47%* Post 30/6/94 Invalidity Tax Exempt CGT Exempt Tax Exempt Super s27b & s27c (ITAA 1936) * Plus Medicare Levy. ^ The low tax threshold is a lifetime threshold applicable to ETPs paid to individuals over age 55. If a person receives more than one ETP, any remaining balance (including indexation increases) can be carried forward and applied to the Post 30/6/83 component of subsequent ETPs. Financial Year Low tax threshold 2005/06 $129, /05 $123, /04 $117, /03 $112, /02 $105, /01 $101, of 65

28 Departing Australia Superannuation Payment* Undeducted Tax Exempt Post 30/6/94 Invalidity Tax Exempt Post 30/6/83 (untaxed) 40% Remaining benefit 30% s27ga (ITAA 1936) * The withholding tax rates apply regardless of whether the member has supplied an Australian TFN. Reasonable Benefit Limits (RBLs) Standard RBLs Year Lump Sum Pension* Indexation Factor^ 2005/06 $648,946 $1,297, /05 $619,223 $1,238, /04 $588,056 $1,176, /03 $562,195 $1,124, /02 $529,373 $1,058, /01 $506,092 $1,012, /00 $485,692 $971, /99 $471,088 $942, /98 $454,718 $909, /97 $434,720 $869, /96 $418,000 $836, /95 $400,000 $800,000 * To qualify for the Pension RBL an investor must take at least 50% of the qualifying portion of all assessable benefits or 50% of their Pension RBL (whichever is less) in the form of a complying income stream see page 38. s140zf (ITAA 1936) ^ To be used when calculating a current Transitional RBL. Note: When a benefit is assessed against the Lump Sum RBL and the person is less than 55, the RBL is discounted by 2.5% for each whole year between the person s current age and their 55th birthday. The Pension RBL is not discounted. s140zd (ITAA 1936) 26 of 65

29 Excess Benefit = RBL amount of + Sum of adjusted - Applicable current benefit RBL amounts of RBL previous benefits s140za (ITAA 1936) Amounts counted for RBLs ETP Component RBL Amount* Qualifying Portion^ Undeducted Nil Nil Concessional Nil Nil Pre 1/7/83 Super ETP 100% 100% Pre 1/7/83 Employer ETP Nil # 100% Post 30/6/83 (taxed) 100% 100% Post 30/6/83 (untaxed) 85% 100% Post 30/6/94 Invalidity Nil Nil CGT Exempt 100% 100% Super * This is the amount of a benefit which is counted towards a person s RBL for the purpose of making an RBL determination (ie. to determine the excessive amount of an ETP or the rebatable portion of an income stream). s140zh - s140zm (ITAA 1936) ^ The Qualifying Portion of any benefit received by a person (including the current benefit) is used to determine whether the current benefit is to be assessed against the Pension RBL. s140zg (ITAA 1936) # If the employee is an associate of the employer (eg. a director or a partner), 100% of the Pre 1/7/83 component will count towards their RBL. s140zj (ITAA 1936) Refer to page 41 for the RBL amount applicable to income streams. 27 of 65

30 Adjusted RBL amount of previous benefits Current RBL AWOTE Index no. for 2nd last quarter* = x Value Amount AWOTE Index no. for payment quarter^ * Two quarters before the quarter in which the current benefit is paid. ^ Quarter in which the previous benefit was paid. Note: A previous benefit is not indexed if received within 12 months of current benefit. s140za (ITAA 1936) AWOTE Index Numbers Year March June Sept Dec of 65

31 SMSF Membership Rules A SMSF must have < 5 members (including pension recipients) and generally all members must be trustees. In addition, no member of the fund can be an employee* of another member, unless the members are related. Members under a legal disability (eg. < 18) cannot be trustees, however a parent, guardian or legal personal representative may be a trustee in their place. Trustees must not receive remuneration for services performed as trustee. Corporate Trustees (>1 member funds) A company can be a trustee of a SMSF where: All directors of the company are members of the fund; Each member of the fund is a director of the company; No member of the fund is an employee* of another member of the fund, unless the members are related. Single Member Funds Possible if the fund has an additional trustee who is not a member of the fund (the additional trustee cannot be an employer of the sole member unless they are related). A company with 1 or 2 directors may also be trustee of the fund as long as the member is a director. Where the trustee company has two directors, the SMSF member cannot be an employee of the other director unless related. s17a (SIS) * Includes employment by related entities. Super 29 of 65

32 Super Investment Rules Complying funds must: 1. Satisfy the sole purpose test s62 (SIS) 2. Ensure all transactions are at arm s length s109 (SIS) 3. Not borrow (limited exceptions) s67 (SIS) 4. Not provide financial assistance to members or relatives s65 (SIS) 5. Not acquire assets from related parties* s66 (SIS) 6. Satisfy the in-house asset rules s69 - s85 (SIS) 7. Ensure investments are consistent with fund s investment strategy SIS Reg Not use fund assets as security for borrowing SIS Reg *Exceptions to acquiring assets from related parties include: Securities listed on an approved stock exchange Business real property (up to 100%) for funds with < 5 members only Units in widely held unit trusts Approved banking deposits Life insurance policies (other than those owned by a member or relative of a member) Arm s length investments in a PST In-house assets within allowable limits (see below). In-House Asset Rules Generally, super funds are restricted from lending, leasing or investing more than 5% of the fund s total assets to a related party of the fund. Transitional provisions: Date of Investment To 11/8/99 Counted as In-House Asset No* 12/8/99 to 23/12/99 Yes* (from 1/7/2001) From 24/12/99 * Provided the investment wasn t captured under the old definition (ie. investment in, or loan to a standard employer sponsor or an associate of the employer sponsor). Yes 30 of 65

33 Funds with < 5 members may be able to reinvest earnings and make payments on partly paid shares/units up to 30/6/2009. Assets excluded from the in-house asset rules include: Business real property subject to a lease with a related party (funds with < 5 members). Property owned as tenants in common (unless subject to a lease with a related party). s69 - s85 (SIS) Death Benefits Accrual Phase For the tax treatment of income streams after the death of the original recipient see page 44. Super Lump Sum Benefit (death benefit ETP) Paid to Dependant* Tax Treatment Up to Deceased s Pension RBL^ Nil Above Deceased s Pension RBL^ Taxed at up to 47% # Paid to Non Dependant* Up to Deceased s Pension RBL^ Undeducted Tax Treatment Pre 1/7/83 5% at Marginal Tax Rate # Nil Post 30/6/83 (taxed) 15% # Post 30/6/83 (untaxed) 30% # Above Deceased s Pension RBL^ Taxed at up to 47% # s27aaa, s27b, s27c & s159sa (ITAA 1936) * For this tax purpose (and subject to governing rules) a dependant includes a spouse, child < 18, financial dependant or a person with an interdependency relationship with the member. For SIS purposes, a dependant includes the above and also a child of any age. ^ Taking into account previous benefits received by the deceased (and those paid due to death). # Plus Medicare Levy, unless paid to the deceased s estate. The portion of the excessive component (the amount above the deceased s Pension RBL) that relates to the post 30/6/83 taxed element is taxed at 38%. # The balance of the excessive component is taxed at 47%. # 31 of 65

34 Pension Benefit* (first payable on death) RBL Treatment Assessed against beneficiary s RBL (lump sum RBL discounted if < 55). However, no RBL reporting or assessment if first paid to a child < 18 at commencement. s140r, s140zc (ITAA 1936) Rebatable Proportion 15% offset on non-excessive portion. s140zq & s159sm (ITAA 1936) Deductible Amount Based on Undeducted Purchase Price and: beneficiary s life expectancy, or if applicable longest life expectancy for automatic reversion, or term. s27h (ITAA 1936) * If the pension is commuted, the ETP will be a death benefit ETP and taxed accordingly provided the commutation occurs within the later of: 6 months from date of death, or 3 months from grant of probate/issue of letters of administration in respect of the deceased member. Otherwise, the ETP will be treated as an ordinary ETP. If the ETP qualifies as a death benefit ETP it will only be assessed against the deceased member s Pension RBL (taking previous benefits and other lump sum benefits paid on death into account) where the commutation occurs within 6 months from date of commencement of the pension. Note: Death benefit ETPs cannot be rolled over. 32 of 65

35 Income Streams Facts & Figures Contents Income Streams Taxation Treatment 34 Life Expectancy Factors 35 Allocated Pension Min/Max PVFs 36 Term Allocated Pension Payment Factors 37 Complying Income Streams 38 Non-Commutable Income Streams 40 Defined Benefit Pensions (fixed term or lifetime) 40 RBL Amount of Income Streams 41 Commutation 42 Death Benefits Income Streams 44 Income Streams 33 of 65

36 Income Streams Taxation Treatment Deductible Amount = Undeducted Purchase Price (UPP) - Residual Capital Value (RCV) Relevant Number (RN)* For ETP income streams, UPP is calculated as follows: Commencement Date UPP Before 1/7/94^ Undeducted + Pre 1/7/83 + Concessional 1/7/94-30/6/97 Undeducted 1/7/97-4/6/98 Undeducted + CGT Exempt After 4/6/98 Undeducted + CGT Exempt + Post 30/6/94 Invalidity s27a-27h (ITAA 1936) For ordinary money annuities, UPP equals the amount of the investment. * Relevant Number is: For fixed term, the term of the income stream (see page 38 for the terms applicable to complying income streams), or For allocated and lifetime income streams, the life expectancy of the investor (use longest life expectancy for joint life or automatic reversions of lifetime income streams). ^Income streams purchased solely with the proceeds of a Pre 1/7/94 income stream will continue to receive this favourable UPP treatment. Super Pension & ETP Annuity Offset For ETP income streams, the tax offset each year if over 55, or payable by reason of death or disability, equals: Annual Income payments x 15% x Rebatable Less Deductible Amount Proportion Where: Rebatable Proportion = RBL Amount Excessive Amount RBL Amount s159sj - s159su (ITAA 1936) 34 of 65

37 Life Expectancy Factors The life expectancy factors to be used from 1/1/2005 are: Age Male Female Age Male Female Income Streams Source: Australian Life Tables of 65

38 Allocated Pension Min/Max PVFs The min/max income for an Allocated Pension/Annuity is calculated at commencement and then at 1 July each year. Age Min. Max. Age Min. Max Note: Min/max income is pro-rated during the first year and on commutation. If commencing between 1 June and 30 June, the first income payment does not have to be made until the following financial year. The annual min/max income is not recalculated on partial commutation but is recalculated at each 1 July. SIS Regs Schedule 1A 36 of 65

39 Term Allocated Pension Payment Factors The income for a Term Allocated Pension/Annuity is calculated at commencement and then at 1 July each year. Term Remaining Payment Factor Term Remaining Payment Factor Income Streams Note: Income is pro-rated during the first year and on commutation (where allowable). If commencing between 1 June and 30 June, the first income payment does not have to be made until the following financial year. Annual income is not recalculated on partial commutation but is recalculated at each 1 July. Any account balance remaining at the end of the term must be paid out as income within 28 days. SIS Regs Schedule 6 37 of 65

40 Complying Income Streams To obtain a social security 50% assets test exemption (ATE) or qualify for the Pension RBL, a complying income stream must meet a number of set criteria. Below are key criteria and features of complying income streams. Term Allocated Pensions Can only be purchased with super or ETP monies. Income payments vary annually based on account balance and a payment factor (PF) related to the remaining term (see page 37). The term established at commencement must be either: Between the investor s life expectancy (LE)* and their LE* if they were up to 5 years younger. Or, if the investor specifies that the income stream will automatically revert to a spouse with a longer LE they may choose a term based on their own LE* (above) or: Between the spouse s LE* and their LE* if they were up to 5 years younger.^ Note: A spouse includes a married or de facto partner but not a same sex partner. Lifetime # Income payments are fixed except for indexation (capped at greater of CPI +1% or 5%). The maximum guarantee period is 10 years if commenced before 20/9/2004 or the lesser of 20 years or LE if commenced after this date. For joint lifetime ordinary annuity, the longer LE may be used. Payable for investor s life and, if applicable, automatic reversionary s life (unless a child <16 or a student <25) or joint ordinary annuity owners lives. 38 of 65

41 Life Expectancy (Fixed Term) # Income payments are fixed except for indexation (capped at greater of CPI +1% or 5%). The allowable term is the same as for Term Allocated Pensions (see page 38). Couples (married or de facto but not same sex) may purchase a joint ordinary annuity income stream for ATE purposes provided that each is the reversionary of the other with the term determined under the same conditions as a Term Allocated Pension (see page 38). Common criteria includes: No Residual Capital Value. Generally, non-commutable except in first 6 months of a non-commutation funded complying income stream, to pay a surcharge liability, to give effect to a Family Law split, on death^ or, to purchase another complying income stream. Purchase price must be wholly converted into income. Capital must not be used as security for borrowing. Cannot be transferred except on death. Reversion/commutation value cannot be >100% of the benefit immediately prior to reversion/commutation. * Life expectancy is rounded up to the nearest whole year. ^ Subject to governing rules/contract, for Pension RBL purposes (but not ATE) a spouse established as an automatic reversionary may commute provided that the term is based only on the original investor s life expectancy (up to 5 years younger). For both Pension RBL and ATE purposes, if LE* is based on longer LE* of spouse, the income stream must continue until death of both. Lifetime income streams cannot be commuted by a reversionary if outside the guarantee period. # Lifetime and life expectancy pensions can only be commenced in a SMSF in limited circumstances (see page 40). For Pension RBL purposes the income payments may reduce but by no more than the reduction in CPI (if applicable). SIS Reg 1.05, 1.06; s9a, s9b & 9BA (Social Security Act); s5ja & s5jb (Veteran s Entitlements Act) Income Streams 39 of 65