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Super Advice.

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Compleks, 21st Jun, 2007.

  1. Compleks

    Compleks Well-Known Member

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    I was hoping to get some information on superannuation.

    Basically, I have only recently started working a 'real' job. However, most of my income is in the form of cash and/or check, as I do contracted work.

    I was hoping someone might be willing to give me some information and advice on starting up a super fund.
    Lately I have heard alot about different funds (self managed, directed etc...) and am confused as to what I should be looking for.

    How exactly does a super fund operate?
    How do super funds differ from each other?
    What should I consider when looking for a fund?
    Can you change funds easily if you aren't happy?

    I heard lately that a super fund is probably the most important investment most people will make. Whether or not that is entirely true, it does make sense that I should put some thought into it.

    If anyone could help point me in the right direction it would be greatly appreciated.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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  3. Compleks

    Compleks Well-Known Member

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    Thanks Sim. I will definitely give those a read.
     
  4. MattR

    MattR Well-Known Member

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    Hi Again.

    Super is important for many reasons, but from my "tax" perspective its important because it has tax rates of 15%, 10% and 0%. As opposed to rates of up to 46.5% if assets held in personal name. Therefore as a tax tool and a wealth creation tool it is very useful.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I agree that it does make sense from a tax perspective ... however, for anyone under the age of 40 (possibly even under the age of 50), I think you would be much better off ignoring super (despite the tax advantages) and aiming to be financially independent well before the government's retirement age.

    Of course it makes sense to minimise tax, but investing with only tax in mind is not a good approach in my opinion ... it can blind you to the problems of the investment scheme you are using.
     
  6. MattR

    MattR Well-Known Member

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    Sim

    I did not intend for my response to be so literrally taken, hence I started it with "..super is important for many reasons..".

    But I, for one who is under 40, will not ignore super. I used it recently for a business client who is aged 36 to reduce CGT on a $600,000 capital gain to Nil, a saving of about $180,000, forgetting the problem of accessing the funds from his company - potentially another 16.5% in personal tax. This was very simple by the way using the CGT concessions for small business.

    Now that's a pretty powerful argument from my perspective. In this instance the client was informed of the basic catch, or disadvantage, ie. funds locked until retirement, but made the decision that best suited them. Now $180,000 in their pockets instead of the taxmans, compounded for 20 years is a big number!

    Just becuase the money is in super does not mean it can't be used pre-retirement age - But thats a discussion for another day.
     
  7. Compleks

    Compleks Well-Known Member

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    Interesting discussion.
    It's always good to hear different points of view.
     
  8. DaveA

    DaveA Well-Known Member

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    Matt, would you be able to explain this a little further for us..

    im guess it would of been about a $360k gain before the 50% discount, making him in the 46.5% bracket...

    but did he get a 50% discount (small business), 50% CGT discount, and then contribute the whole gain into super to avoid the 25% taxable gain (at 46.5%)

    also is this just a small business owner relief, that gains from the sale of a business if placed into super are not taxed, ive read a little bit about it but would love to learn more about it...
     
  9. Rod_WA

    Rod_WA Well-Known Member

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    I'll stick my two bob in here. I'm currently looking at setting up a SMSF, but for somebody in their first job, the management fees and obligations of a SMSF operator demand a sizable fund balance, at least $100k, more realistically $200k.

    So, if you are just starting out in super, you have three basic choices:
    1. Industry fund
    2. Retail fund
    3. Government employees fund

    1. Industry fund: low fees, simple investment choices, eg perhaps 5 to 10 fund options, eg defensive, balanced, growth, Aussie shares, International share, property. Biggest (I think) is REST.

    2. Retail fund: fees are generally larger than industry funds, and returns tend to be accordingly a bit lower; however, investment choices may be wider. Big players are Colonial, AMP, MLC, etc.

    3. Government employees fund: if you work for the government (state, and I think federal also) you may have to use their super scheme, eg in WA it is GESB (Westscheme). These may be closed to non-government employees.

    4. Private industry funds: eg Telstra employees fund. But these may be a bit awkward to operate from your employer's point of view.

    Personally, I'm with an Industry fund, REST. I spent several years having my super dumped into drastically underperforming retail funds, and got out about four years ago. One of the best decisions I ever made. REST offer free transfers across asset types, which allows you to fully control asset allocation within super, and the management fees are very low. Life insurance is quite good (not the cheapest available) but my equivalent cover with MLC was $112 a month (after tax dollars outside super) but now I use REST and it costs me $54 a month (out of my super balance, which frees up that $112 for me to spend on Foxtel and red wine).

    Depends. Super Choices legislation suggests that it is easy, naturally you have to fill out a form or two. Be prepared for a bit of a fight from the fund you are leaving, about the same as changing your mobile phone provider!!!
    The difficulties often arise at the employer level, as often your employer has to sign up with your preferred super mob, and this involves direct debit arrangements, etc. Depends on how many chocolates and flowers you buy the lady in the accounts/payroll department, and there are some arrangements that aren't going to work at all.

    At this stage, since you're starting out, you might just ask around your workplace, and see who knows the most about it, and who they're with. At least then you'll know that the employer issues are ironed out.

    Hope this helps.
     
  10. Compleks

    Compleks Well-Known Member

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    Many thanks Rod.

    Because I do contracted work, I don't think my 'employer' (I don't think he would classify as an employer, would he?) has anything to do with my Super. This is why I want to learn more about it, because it all comes down to me.

    Anyway, thanks for the tips mate.
     
  11. Rob G.

    Rob G. Well-Known Member

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    As a 'contractor' you may or may not be an employee for SGC purposes. This is confusing as it has different criteria than for taxation and employment law.

    If you are an employee for SGC then each 'employer' or your agency may have to contribute for you. You cannot claim deductions for your own contributions !!

    If you are a contractor for superannuation law then you can make tax deductible contributions in your name to your chosen fund. Make sure that you factor in to your contract terms the extra saving your payer is making by not having SGC costs.

    As usual, get some good advice,

    Cheers,

    Rob
     
  12. MattR

    MattR Well-Known Member

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    Hi DaveA
    In this instance the client sold his business, which was owned by his Pty Ltd company. As the asset, the business goodwill, was owned by a company the general 50% CGT discount is not available (another reason to get good advice when setting up a structure). So generally tax payable by a Pty Ltd is at 30% on capital gains, so this is the $180,000 I referred to above.

    So in this instance the client was able to utilise the CGT Small Business Concessions, as the goodwill of the business was an Active Asset, they had a controlling individual (and CGT stakeholders) and they passed the $5M assets test. As such the client could have used the 50% Active Asset concession and/or the Retirement exemption ($500K lifetime limit per individual)

    In this instance we used the Retirement Exemption on the full $600K for the client and his CGT stakeholder spouse, ie $300K each, rolled into their SMSF and we didn't use the CGT 50% Active Asset Concession. Therefore Nil CGT. So that $600K is now in super and they are utilising it for their next investment.

    The problem with the CGT 50% Active Asset concession is that whilst the money is not taxed in the company, it still remains an asset of the company. In addition as it has not been taxed, should you try and access those funds from the company you can get slugged for that tax.