Tax and Super Offsets: How to Make it Work for You
Mar 17, 2016 - By Nicholas Scott Property Investments

Opening a retirement income account is a great way to fund your retirement and take advantage of tax benefits, since you won’t pay taxes on investment earnings within your retirement income account.

If you do owe tax on your retirement income because you’ve withdrawn money before you’ve reached the set age, interest is taken off before your income is deposited into your bank account. This tax will be deducted from the amount you’re owed in the same way tax is deducted from working wages.

If you’re completely or partially self-employed, you may be able to claim a tax deduction if you’ve made a contribution to super. Remember, however, if you can claim a deduction you need to tell your super fund you plan to before you transfer or roll over any amount to another retirement income account.

Your tax treatment will depend on your age. If you’re over 60 years old, your income payments are tax free. If you’re under 60 years old, AustralianSuper will calculate your tax and deduct it from your super income before it’s paid over to you.

When you’re under 60 years old, your retirement income account is separated into a taxable element and a tax-free element. Your tax free element consists of:

  • Government contributions
  • After-tax contributions
  • Capital gains tax exempt component
  • Pre-July 1983 benefits calculated at 30 June 2007
  • Certain disability benefits received before the “post-30 June 1994 invalidity component”

The remainder of your retirement savings is your taxable element, and if you’re under 60 and you withdrawal from your account your withdrawal may include a taxable element and a tax-free element.

Super Income Stream Tax Offset

If you receive income from an Australian superannuation income stream, you may be eligible to claim a tax offset. The offset may be:

  • 15% of the taxed element or
  • 10% of the untaxed element

Your payment summary will show the amount of the offset you are due.

Before you turn 55 years old, you’re not entitled to the tax offset for the taxed element unless the super income stream is either a:

  • death benefit income stream or
  • disability super benefit

Before you turn 60 years old, you’re not entitled to the tax offset for the untaxed element of any super income stream unless the:

  • super income stream is a death benefit income stream and
  • the deceased passed away after he or she turned 60 years old

So, how can you make this offset work for you if you’re not entitled to a tax offset per the conditions above? There could be another way.

Super Contributions on Behalf of Your Spouse

Per year, you’re entitled to up to 18% tax offset on super contributions up to $3,000 if all of the following conditions apply and you make contributions to a retirement savings account or superannuation fund on behalf of your spouse(married or de facto) who isn’t working or is earning a low income.

Tax offset conditions for super contributions on behalf of your spouse:

  • the contributions were not deductible to you
  • the contributions were made to a complying super fund in the income year you made the contribution
  • you and your spouse were Australian residents when the contribution was made
  • you and your spouse were not living separately on a permanent basis when the contributions were made
  • the sum of your spouse’s total accessible income, reportable fringe benefits, and reportable employer super contributions was less than $13,800

It’s important to note that you cannot take the tax offset for eligible spouse contributions for super contributions you made to your own fund and then split to your spouse as this is considered a transfer or rollover and not a contribution.

While knowing how to take advantage of the super income tax offsets you may be eligible for is important, remember, in this low interest rate environment, super alone may not be enough to live comfortably off of.

If you have questions about investment property or would like to speak to a qualified real estate professional, contact us.

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