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Please note these terms and rules have been tailored to the Self Managed Super Fund arena. While some of the terms may relate to the broader superannuation arena it is the user’s responsibility to check and ascertain the accuracy and relevance to their circumstances. Nothing here should be taken as advice. You should seek professional advice based on your own circumstances. Super Plus is not liable for your reliance on the information provided or any error contained in the information.

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Account Based Pension (ABP)

This is a pension paid from your non-preserved account balance. It will continue until the balance is reduced to zero (through paying out pension payments), or is cashed out as a lump sum, or commuted back to accumulation phase. The ABP is most commonly designed to provide you with an income stream using your retirement benefit when you retire, but may also be paid from a total and permanent disability (TPD) benefit, terminal illness benefit or a death benefit.

There is no requirement to withdraw a maximum pension payment from an ABP and you may also withdraw additional lump sum payments (tax may apply). However, a minimum pension payment amount must be drawn each year. It is calculated by multiplying your account balance as at 1 July (or the commencement of your pension) by a percentage factor depending on your age, as follows:

Age

Percentage minimum drawdown per annum

Under 65

4%

65-74

5%

75-79

6%

80-84

7%

85-89

9%

90-94

11%

95+

14%

When you commence your ABP, you may nominate a reversionary beneficiary to receive your pension when you die. Alternatively, you may complete a pension death nomination at any time, nominating which of your dependants or legal personal representative you would like to receive your remaining account balance on your death as a death benefit.

If you are age 60 or over, no tax is payable on your pension payments nor is there any requirement to record the pension payments in your personal income tax return. Pension payments to a member aged under 60 years may be taxable, with a tax rebate. Taxable pension payments to members under 60 years are recorded in a PAYG payment summary and the details must be included in the member’s personal tax return.

Actuarial Certificate

SMSFs that pay pensions may be required to obtain actuarial certificates. If a SMSF has solely account based pensions for all members then there is no need for an actuarial certificate.

An actuarial certificate is required if the SMSF has a mix of accumulation accounts and account based pensions, or for any SMSF that contains a complying pension. The certificate will include a valuation of pension assets for either of the following reasons:

  • Tax exemption percentage of the SMSF: this determines the portion of the fund’s income that qualifies for exemption from tax.
  • Capital Adequacy: this determines whether there is a “high degree of probability that the fund will be able to pay the pension as required under the fund’s governing rules”.
Allocated Pension (AP)

This is the term previously used to refer to a common pension being paid from a super fund. This term may still be used for a pension set up prior to 20th Sept 2007 and still making payments calculated under the old rules. Many of these pensions have since been converted to the payment terms of an Account Based Pension, as these pensions allowed for a lower minimum payment and no maximum.

There are limits on the amount that can be used to start pensions, see Balance Transfer Cap.

ATO Levy

This is a supervisory levy of $259  is  paid by every SMSF to the ATO. It forms part of the SMSF Income & Regulatory Return (tax return) of the fund.

 Audit

An audit of the fund’s financial statements and compliance with the SIS Act is required every year. The audit is conducted under guidelines set out by the ATO and various accounting bodies of which the auditor may be a member. The audit is best conducted by someone independent of the trustees or the people preparing the fund financials. Super Plus does not engage in audit practice and uses an independent auditor for the audit of its SMSFs.

Audit Breach

An audit breach occurs when the auditor identifies a breach of the SIS rules by the SMSF. The auditor has a duty to report breaches to the ATO in a prescribed format. The ATO has a range of actions it may take, ranging from a warning through to prosecution of the trustees. The trustees should ensure they always comply with the SIS requirements and take action to remedy any breaches immediately.

Balance Transfer Cap

This is the amount of superannuation date may be transferred to a pension. It is the total amount across all superannuation account.

Balance Transfer Cap for the 2017/18 year is:

  • All ages – $1.6M

When starting a pension the commencement balance is added to the transfer cap total. Once the amount used to start pension(s), in total across all pensions exceeds $1.6M, no new pension(s) can be started.

Growth on the pension is not counted, therefore the increase in value of the pension once commenced does not restrict additional pension starts.

If a pension is commuted back to accumulation phase, the amount is deducted from the balance transfer cap, thus allowing future pensions to be started, if applicable.

Borrowing (Limited Recourse Borrowing)

A SMSF is prohibited from borrowing or having a charge placed over its assets. There are however some exceptions. A SMSF may borrow for up to 30 days in order to make a benefit payment. A SMSF may also borrow via an Instalment Warrant or using a Limited Recourse Borrowing arrangement, which uses a type of trust known as a “security” or “bare” trust to hold the asset subject to the borrowing.

Business Activity Statement (BAS)

A BAS is the statement from the ATO which is completed and lodged with the ATO, usually on a quarterly basis. It encompasses return information for GST, PAYG income tax instalments and PAYG tax withheld.

Capital Gains Tax (CGT) contributions

If you own an eligible small business, you may be eligible for a CGT exemption on the sale of your business or its assets. You may be able to use all or part of the proceeds of the sale to contribute to super as a CGT contribution. You must provide a CGT cap election form (available from www.ato.gov.au) within 30 days of making a CGT contribution, otherwise the amount in excess of the non-concessional cap will be refunded to you.

CGT contributions:

  • Are not subject to contributions tax, or TFN tax
  • Form part of the tax-free component of your super benefit
  • Count towards the non-concessional contribution cap to the extent they are greater than your lifetime CGT Cap. Amounts below the CGT Cap do not count towards any contribution cap.

The CGT Cap is $1.445 million (2017-18 indexed annually) for your lifetime. Excess counts towards the NCC cap.

Collectables

This is a class of assets that typically comprise stamps, coins, artwork etc. There are special investment guidelines that must be adhered to regarding this type of investment. This includes restrictions on storage, professional valuations, insurance and how the asset is acquired.

Concessional Contributions (CC)

Concessional contributions are generally contributions made by your employer or by you for which you can claim a valid tax deduction:

Employer contributions: (including 9.5% SG contribution) are contributions your employer makes to your super fund. Employers in Australia are required by legislation to provide a minimum level of superannuation support for most employees. The rate from 1st July 2014 to 30 June 2021 is 9.5% of an employee’s earnings. Your employer may also be required to contribute for you under an industrial award or agreement. These contributions are also referred to as ‘compulsory contributions’ or ‘mandated employer contributions’. Employers may also make ‘additional’ or ‘voluntary’ contributions that form part of your employment contract.

Salary sacrifice contributions: are contributions you have agreed with your employer, through an effective salary sacrifice agreement, to be paid directly to your superannuation account balance instead of being paid to you as salary or wages.

Personal deductible contributions: are contributions you pay to your super fund for which you can claim a tax deduction. You can only make these contributions if less than 10% of your assessable income and reportable fringe benefits is attributable to an employment agreement. For these types of contributions a Section 290-170 notice must be completed. If aged 75 the contribution must be paid in a period that does not exceed 28 days after the end of the month in which you turned age 75.

Concessional Cap

Concessional cap for the 2017-18 year is:

  • All ages – $25,000 per annum (indexed)

Exceeding the CC cap

  • All contributions in excess of your concessional cap will be taxed at margin tax rate (personal income tax rate) after adjustment for contributions tax paid in super fund.
  • There will be an excess contributions charge
  • Option to withdraw excess amount, net of 15% contributions tax.
Contributions Matrix

The table below sets out the basic eligibility requirements for the majority of super contributions, see the respective cap details for the relevant contribution limit details.

 

Non-Concessional Contributions (NCC)   (Contributions after tax) (2017-18)

See NCC Cap section for more detail, as restrictions apply when members exceed $1.4M in superannuation.

< 65

Age 65 – 69

Age 70-74

Age 75+

Personal Contribution

1TFN $100K each year or 3 years using   brought forward years $300k limit

1TFN $100K limit
3Work Test

1TFN $100K limit
3Work Test

428 Day rule

Spouse Contribution

1TFN
$300k limit

1TFN
$100k limit
3Work Test

Child Contribution

(only to age 18)
TFN
$300k limit

Personal Injury Contribution& / or Small Business   Concession for 15-year retirement exemption ($1.415M limit)

Not counted towards NCC cap

1TFN

Not counted towards NCC cap

1TFN

Not counted towards NCC cap

1TFN

Not counted towards NCC cap

1TFN

 

Concessional Contributions   (contributions before tax)

< 65

Age 65 – 69

Age 70-74

Age 75+

Employer Contribution
9% SG Contribution

2TFN Tax

2TFN Tax

Employer contribution
compulsory or mandated

2TFN Tax

2TFN Tax

2TFN Tax

2TFN Tax

Employer Contribution additional voluntary or salary sacrifice contribution

2TFN Tax

2TFN Tax

3Work Test

2TFN Tax  3Work Test

Personal Deductible Contributions

1TFN

2TFN Tax

3Work Test

2TFN Tax  3Work Test

Please note: Although the above table may indicate that you are eligible to contribute to super, contributions tax, TFN tax and excess contributions tax may apply to your super contribution.

Notes to table:

1. TFN
If you make a super contribution (other than an employer contribution), you must provide your TFN within 30 days of making the contribution, otherwise the contribution must be refunded to you less adjustments for taxes, fees, costs and insurance premiums, and reduced or increased for market movements.

2. TFN tax
It is not compulsory to provide your TFN, however if you do not, the super fund may be required to deduct additional TFN tax of 32.5% from your concessional contributions, and the taxable component of an untaxed rollover or employer directed termination payment (DTP). This is in addition to the 15% contributions tax.

3. Work Test
If you are aged between 65 and 74 you must meet the work test to be allowed to make some super contributions. This work test requires you to have worked at least 40 hours within 30 consecutive days during the respective financial year prior to making the contribution. Generally, a super fund cannot accept super contributions after you reach age 75.

4. 28 day rule
You or your employer may contribute if you meet the work test and the contribution is received by the fund within 28 days after the end of the month in which you turn 75.

Contributions  Tax

This tax of 15% is deducted from your account balance on entry, most commonly on your concessional contributions.

Individuals with income greater than $250,000 in 2017-18 (including super will be subject to a further 15% tax (total 30%) on concessional contributions. This additional tax is known as a Division 293 tax.

Other taxes that may apply to your super contributions include TFN tax and excess contribution tax.

Corporate Trustee

(For registered users, see our detailed guide in the Resource Centre)

This is a company that acts as the trustee of the SMSF. It may be a company that operates a trading business, however it is generally acknowledged that a company acting solely as a corporate trustee, known as a special purpose company, is the preferred option when using a company. This is because using a trading company may result in you losing control over your SMSF if the company entered some form of administration due to trading difficulties. When a SMSF has a company as the trustee, all directors must be members of the SMSF. There can be no directors that are not members of the SMSF unless the director is acting for a member that has no legal capacity (e.g. holding an Enduring Power of Attorney). If using a special purpose company as a SMSF trustee company the ASIC annual fee is substantially reduced.

Death Benefits

(For registered users, see our detailed guide in the Resource Centre)

This is a super benefit equal to a member’s account balance, which is paid to a member’s dependants or legal personal representative in the event of a member’s death.

If you have not yet commenced a pension, you may nominate a dependant or legal personal representative to receive your death benefit using one of the death nomination types.

When a pension is commenced you may nominate a reversionary beneficiary to receive your pension when you die. Alternatively you may complete a death nomination at any time nominating which of your dependants or legal personal representative you would like to receive your remaining account balance when you die.

If your death benefit is paid as a lump sum to your eligible dependants (eg: wife, financial dependents), no tax is payable on the payment.

If the death benefit is paid to non-dependants (e.g. brothers & sisters) then the benefit may be taxable.

Death Benefit Tax Rate Benefit Explanation
Paid to your dependants 0% A death benefit is considered to be paid to your   dependants if it is either paid directly to them or distributed to them via your legal personal representative. No tax is withheld in these circumstances.
Not paid to your dependents Typically, benefits tax is withheld by the fund from the   death benefit paid directly to your non-dependants and remitted to the ATO. No tax is withheld by the fund if the death benefit is paid to your legal personal representative, instead tax is withheld by your legal personal representative on subsequent payment to your dependants. If any tax is withheld, your non-dependants will be given a payment summary to include in   their tax return.* Plus Medicare levy, if paid to a beneficiary from the super fund. If paid to the deceased members estate, then Medicare levy not payable.
– Tax Free component 0%
– Taxable component
        Element taxed *15%
        Element   untaxed *30%
 Death Nomination Types

(For registered users, see our detailed guide in the Resource Centre)

There are a number of options concerning death nominations. Listed below are the basic considerations which are not designed to be a definitive description. It is vital that any nomination you make is valid and appropriate to the outcome you are trying to achieve. You should carefully consider your decisions and seek professional guidance from a financial adviser, lawyer, solicitor or other professional as to what is appropriate to your circumstances.

Valid Nominations
It is extremely important that the nomination is valid. If the people nominated are not dependants under the SIS legislation, then your nomination will be invalid, and your death benefit will be paid to your legal personal representative, and not as you instructed in your nomination.

Dependants
Under SIS law, your death benefit may only be paid to your dependants or your legal personal representative.

Your dependants are your current spouse (including de facto), your child (including step, adopted or ex-nuptial), any person financially dependent on you, or a person with whom you have an interdependency relationship. Therefore, brothers and sisters are not normally classified as dependants, unless financially dependent. Recording them may invalidate your nomination.

For tax purposes, the same people are your dependants except that a child is deemed only to be your dependant if they are under age 18. This means that if you nominate your child age 18 or over to receive your death benefit, benefit tax may be withheld from the payment. See Death Benefits section for more information on the tax withheld from death benefits.

A pension may only be paid after you die to an eligible pension dependant. Otherwise, your death benefit will be paid as a lump sum.

Legal Personal Representative
By law, your death benefit can only be paid to your legal personal representative or directly to your dependants. Your legal personal representative is the executor, administrator or trustee of your estate appointed when you die.

 If you have not yet commenced a pension, see death nominations. See reversionary beneficiary if you have started a pension.

Death Nomination
If you have not yet commenced a pension, a death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. This nomination is not binding on the trustee of the SMSF. It is only guidance to the trustee as to what you would like happen. The trustee may decide to pay the benefit differently to your nomination, which may be beneficial depending on the circumstances.

Binding Death Nomination
If you have not yet commenced a pension, the binding death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. A binding nomination, if valid, binds the trustee(s) of the SMSF to pay the death benefits as instructed in the binding death nomination. This type of nomination will expire after 3 years and therefore a new binding death nomination needs to be done at least every 3 years. A new nomination can be done at any time during the 3 years. Your trust deed should be checked for requirements relating to this form of nomination.

Binding Non Lapsing Death Nomination
Your SMSF trust deed must specifically set out the rules for this type of nomination. If you have not yet commenced a pension, the binding non-lapsing death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. A binding nomination, if valid, binds the trustee(s) of the SMSF to pay the death benefits as instructed in the non-lapsing binding death nomination. This type of nomination does not lapse (it is therefore prudent to periodically review). A new nomination can be done at any time.

 

Income Tax (SMSF earnings)

A SMSF with all members in the accumulation phase will have income/dividends taxed at a rate of 15%. Capital gains on assets owned for more than 12 months are taxed at 10%.

SMSFs that have pension members will have a reduced tax rate. If a SMSF has solely pension members then there is no tax on earnings inside the SMSF.

Instalment Activity Statement (IAS)

If a fund is not registered for GST this notice is completed and lodged with the ATO, usually on a quarterly basis. It encompasses return information for PAYG income tax instalments and PAYG tax withheld.

Investment Strategy

(For registered users, see our detailed guide in the Resource Centre)

It is a strategy which outlines the types of investments of the SMSF which are selected to achieve a desired outcome and a minimum level of performance.

It is a plan for making, holding and realising the SMSF’s assets consistent with the investment objective of the Fund.

If you don’t have a valid “investment strategy” then the ATO may deem your SMSF as non-complying. The auditor will check on the annual SMSF audit that you have an investment strategy. If the ATO makes enquiries as to the conduct of your fund the first item usually requested is a copy of your investment strategy.

Under the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) the trustee of the SMSF is solely responsible and directly accountable for the management of the members’ benefits.

The investment strategy is not onerous, but does require ongoing review. Examples of times where it is wise to review and if necessary update the investment strategy include:

Identification and intent to invest in a specific investment opportunity that does not fit with the current strategy:

  • Change in risk tolerance or financial needs or expectations of the member(s) over time
  • Adding a new member to the fund
  • Commencement of a pension for a member (likely to require higher cash liquidity)
  • Death or change in health of a member
  • Marriage breakdown

The investment strategy should have regard to the complete circumstances of the SMSF, including:

  • The risk involved in making, holding and realising the SMSF’s investments, and the likely return from these investments, having regard to the SMSF’s objectives and its expected cash flow requirements;
  • The composition of the SMSF’s investments as a whole, including the extent to which the investments are diverse or involve the entity in being exposed to risks from insufficient diversification. This may also include asset allocation ranges for each of the different asset classes, eg Aust Equities 20% to 65% Benchmark 40%;
  • The liquidity of the entity’s investments having regard to its expected cash flow requirements, for example: payment of tax, lump sum benefits if a member leaves the SMSF, or regular pension payments;
  • The ability of the SMSF to discharge its existing and prospective liabilities, such as being able to pay members’ retirement benefits; and
  • The insurance requirements of members. The trustees must give consideration to the insurance needs of each member, be they retired or not. This is a compulsory requirement under SIS for every SMSF, failure to comply could result in a penalty of up to $ 3,600 per trustee.
Joint Venture

This is when the SMSF and someone else (member personally, unrelated person or entity) partner together to make an investment. The joint venture agreement specifies the way in which the venture is to proceed, who puts in what money, how expenses, income, profit and loss are to be apportioned between the venture parties. The terms must be on a commercial arms length basis. An example of a joint venture would be the SMSF contributing 60% and a member personally contributing 40% towards the purchase of a business property.

Limited Recourse Borrowing (Instalment Warrant)

This is a type of investment or structure in which an asset is purchased, with some of the purchase money coming from borrowings. The borrowings will be internal to the structure and will not have recourse to the investor, in this case the SMSF. There is also the right of the investor to acquire the underlying asset in the future, with the borrowed funds part being repaid at that time.

Lodgment Date

The lodgement date for the Income & Regulatory Return of a SMSF depends on its status. The lodgement due date is always in the year after 30th June of the relevant year. For the 1st year of operation the lodgement date is 28th February following 30th June the previous year.

For each year after the first year (e.g. 2nd year of operation) the due date is 15th May in the year after 30th June of the relevant year, e.g. year end 30th June 2017, then the due date is 15th May 2018.

The exception to this is for an existing fund that has previously failed to lodge on time. In this case, there may be a late penalty and the lodgement date moves to 31st October, being only 4 months after the financial year end. The lodgement date will revert to 15 May once all outstanding returns are lodged and the SMSF brought back on track.

Lump sum

This is a superannuation benefit paid to you as a single lump sum amount rather than paid to you in the form of a pension. A lump sum benefit can be paid as a cash payment or by the in-specie transfer out of a fund asset.

Member

A member is someone that has a benefit in the SMSF, such as an accumulation account or a pension account. All members must be a either an individual trustee (2 individual trustees required) or a director of a corporate trustee. A member may be in a SMSF without an account balance as contributions may not have been paid in or rollovers received. Each member must complete a member application to join the fund.

Minute

This is a record of the trustees’ meetings and decisions. These are vital for recording what has occurred in the SMSF and documenting the trustees’ decisions. Without minutes it may be difficult to justify why certain decisions have been made. Such need would likely arise if an ATO audit was to occur, or there was a dispute over the operation of the SMSF.

Non Concessional Contributions (NCC)

Non-concessional contributions are generally contributions made by you from your after-tax income. They may also be made by your spouse or on behalf of your child.

Personal contributions: a contribution you make to your account balance from your after-tax money for which you do not claim a tax deduction.

Spouse contributions: a contribution by your spouse from their after-tax money to your account balance for which your spouse may be entitled to claim a spouse contribution offset.

Child contributions: a contribution paid from after-tax money on behalf of a child up to age 18 (other than a contribution by the child’s employer).

These contributions:

  • Are not subject to contributions tax or TFN tax
  • Are refunded to the contributor, less taxes, fees, costs and insurance premiums, and reduced or increased for market movements, if you do not provide your TFN within 30 days,
  • Count towards your NCC cap,

The NCC cap:

In the year 2017-18 the cap is

    • Under age 65 (at time of the contribution or beginning of the 3 year period) – $100,000 per annum, or up to $300,000 in one year using the bring forward provision, of two future years of NCC.
    • Age 65 and over (subject to work test) – $100,000 per annum

Note:  the ability to make contributions will also depend on the members total superannuation balance. If a members total superannuation across all funds,  at 1st July each year exceeds $1.6M, then no NCC’s will be able to be made. If your balance is $1.4M to $1.6M   then then amount of contribution will be limited.

Exceeding the NCC cap

  • All contributions in excess of your non concessional cap can be withdrawn
  • 85% of any earnings on the excess contribution can be withdrawn and will be taxed at your individual marginal tax rate, less a 15% offset.
  • The excess contributions can be left in the super fund, however they will be subject to tax at 46.5% (in 2017-18 there will be extra tax of 2% due to budget repair and Medicare levies).
PAYG Instalment Notices

Pay As You Go is the term referred to as paying an estimated amount of tax in advance as instalments, before your fund’s tax return has been completed and lodged. Payment may be required on a quarterly or annual basis, depending on certain circumstances, and the tax paid by the fund for the previous financial year. Payment is made without the necessity to lodge the notice with the ATO, except if the instalment amount is being varied.

Preservation

Benefits are of two types, non-preserved or preserved.

Non-preserved: Your unrestricted non-preserved amount in your account balance can be cashed out at any time as a lump sum or to commence a pension.

Your restricted non-preserved amount in your account balance cannot be cashed out until you cease employment with an employer who made these contributions to your account balance. Only contributions made to your account balance before 1 July 1999 can give rise to restricted non-preserved amounts.

Preserved: This is the amount of your account balance that is preserved and cannot be withdrawn as either a lump sum or a pension until you meet a condition of release such as retirement, a total and permanent disablement benefit, a terminal illness benefit, or death. You may also access your preserved amount when you are eligible for a pre-retirement pension, e.g. a TRIS style pension.

In exceptional circumstances, you may also be paid some, or all, of your preserved amount if you are entitled to a financial hardship benefit or a compassionate grounds benefit.

Preservation Age: This is the age at which benefits can be taken from a superannuation fund on satisfying a condition of release such as retirement. Benefits already non-preserved are not subject to these preservation ages.

A person’s preservation age depends on their date of birth, as set out in the following table, this means that as of 1st July 2015 the preservation age is age 56.

Date of Birth Preservation Age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60
Product Disclosure Statement (PDS)

This is a legal document that providers of financial products, including super funds must issue to new clients or existing super fund members describing the product’s key features and benefits. The PDS must include disclosure of product rules, conditions and fees.

Reserve Accounts

This is an account inside the SMSF that money may be applied to before a decision is made on the allocation to a member account. The most common account is an Investment Reserve to which profits in good years can be allocated. The reserves are then applied to members when investment returns are low or negative. This strategy thus smooths returns to the members.

A Reserve may also be needed if the SMSF wishes to make provision for any possible Anti-Detriment payments on the death of a member. This is because money may not be taken from other members to make the payment and therefore there must be non member money available to make any such payment. Professional advice should be obtained when operating a reserve.

Residency

To be a trustee of a SMSF you must be a tax resident of Australia. If you are not a tax resident then the fund can be made non complying. Therefore, if you leave Australia (for other than a holiday or contract employment up to 2 years) then you need to consider the implications for the SMSF. This area is complex and you should seek further guidance regarding your circumstances.

Retired

For the purposes of paying a retirement benefit, you are retired when you:

      • Reach your preservation age and have ceased employment and do not intend to ever again work more than 10 hours per week; or
      • You have ceased employment on or after age 60 (regardless of future work intentions); or
      • You turn 65 (regardless of current employment status and future work intentions).
Retirement Benefit

This term best describes a benefit paid to you when you retire, meaning:

      • You have reached your preservation age and have ceased employment and do not intend to ever again work more than 10 hours per week; or
      • You have ceased employment on or after age 60 (regardless of future work intentions); or
      • You turn 65 (regardless of current employment status and future work intentions).

A retirement benefit can be paid to you as a pension, a lump sum, or a combination of both.

Reversionary Beneficiary

On commencing a pension you can nominate a dependant to be your reversionary beneficiary. This means in the event of your death, that person will receive your pension, i.e. the pension reverts to the person you nominated. If the person you nominate is not an eligible pension recipient at the time of your death, then the benefit remaining in your member account must be paid to that person as a lump sum.

Section 290-170 Notice

If you make a concessional contribution and intend to claim a tax deduction in your personal tax return, you must send a notice (from 2008 it is known as a 290-170 notice) to the SMSF trustee notifying them of your intention to claim a deduction. For this to be valid you will need to also receive a confirmation from the trustee that they have received your notice and this notice must be received before the deduction is claimed on your personal tax return.

SMSF

Means Self Managed Superannuation Fund (SMSF) and is sometimes also referred to as a DIY fund, although DIY (do it yourself) is a little misleading as the running of these types of funds is hardly “do it yourself”. Professional assistance (including a SMSF administration service provider such as Super Plus) is usually required by most trustees.

Tax-Free Component

No tax is payable on the tax-free component of your super benefit.

If you have not yet commenced a pension, your tax-free component is generally equal to your after-tax non-concessional contributions (formerly known as undeducted contributions) such as your personal contributions, spouse contributions, child contributions and government co-contributions. Additional amounts such as the pre-83 component (term used before crystallisation on 01/07/07), CGT contribution or personal injury payment are also included in the tax-free component of your account balance.

On commencement of a pension, the proportion of your taxable component and tax-free component is calculated. Every subsequent pension payment amount or lump sum payment drawn from the pension account maintains this set proportion of taxable and tax-free components. Any change in the value of the pension account (gains/losses, income/expenses) is proportioned across both the taxable and tax free components according to the set proportion at the commencement of the pension.

Taxable Component

If you are over the age of 60 there is no tax payable by you personally on the taxable component of your super benefit when withdrawn.

If you have not yet commenced a pension, the taxable component is equal to your super benefit less your tax-free component. Generally, the taxable component is represented by concessional contributions such as employer contributions, salary sacrifice contributions, and personal deductible contributions, plus the taxable component of rollovers, plus the net investment earnings allocated to your account. (This means that growth in the fund value, before commencing a pension, always forms part of the taxable component.)

On commencement of a pension, the proportion of your taxable component and tax-free component is calculated. Every subsequent pension payment amount or lump sum payment drawn from the pension account maintains this set proportion of taxable and tax-free components. Any change in the value of the pension account (gains/losses, income/expenses) is proportioned across both the taxable and tax free components according to the set proportion at the commencement of the pension.

Transition to Retirement Income Stream (TRIS)

This pension is designed to supplement your income in the later years of your working life before you retire. You can only take this type of pension on reaching your preservation age.

Note from 1st July 2017 a TRIS is treated as an accumulation account, that is earnings inside the SMSF are taxed  at a maximum 15%. A TRIS is no longer exempt to earnings tax, as an Account Based Pension( ABP) is.

Due to the increases in preservation age, from 1st July 2015  to start a TRIS the age is now 56 or older.

A minimum pension payment amount must be taken each year. However in addition, you are restricted with a maximum pension payment amount each year of 10% of your account balance as at 1 July (or the commencement date of your pension). You cannot take a lump sum from the TRIS account other than if you are eligible to be paid an unrestricted non-preserved cash benefit from your account balance.

Your TRIS can convert to the rules of an ABP (with no maximum pension payment amount or restrictions on taking a lump sum) on the earlier of the date that you meet the eligibility criteria for a condition of release, such as retirement, reaching age 65, a total and permanent disability (TPD) benefit, a terminal illness benefit, or, you die and a death benefit becomes payable.

If you are aged 60 years or over, no personal tax is payable on the pension money you receive from the TRIS. If you are under age 60 personal income tax may be payable on the pension you draw from the fund.

Trust Deed

This is the document that sets out the governing rules for how a SMSF is operated. From time to time as legislation changes the trust deed may need to be updated. The rules of the trust deed cannot override the SIS Act and Regulations, and in event of a conflict the SIS Act and Regulations will prevail.

Trustee

A trustee is a person or company responsible for the operation of the super fund and ensuring the SMSF is managed according to the trust deed and superannuation law. There is a maximum of 4 individual trustees or 1 corporate (company) trustee with maximum of 4 directors. Each trustee/director must consent in writing to be a trustee and the ATO also requires all trustees after 1st July 2007 to sign a ‘Trustee Declaration’. Each trustee/director must be a member of the fund, unless it is a “single member” fund.

Undeducted Contributions

The term previously used for after tax personal contributions. These amounts form part of your ‘tax free’ component of your super benefits. If the contributions were made after 1st July 2007 they are now called non concessional contributions and would also form part of your ‘tax free’ component.

Untaxed Rollover

This is a rollover from an untaxed source. The taxable element of an untaxed rollover (up to $1.445 million in 2017-18) is taxed in the receiving fund at the rate of *15%. The taxable element of an untaxed rollover above $1.445 million is taxed at *47%. This tax is withheld by the remitting fund.

* Plus Medicare levy.

An untaxed source is generally a super scheme where tax has not been paid on taxable or pre-tax contributions and earnings. These are usually only from public sector super schemes, e.g. Comsuper.