How to Find Your Lost Superannuation
Millions of Australian’s have billions of dollars of unclaimed superannuation just waiting to be claimed. If you change jobs regularly, had part-time jobs though school or university or move house often, then you are likely to have super accounts that have been forgotten just sitting there waiting for you to claim them. There are a number of ways to search for and claim your super, but here are two simple ones.
Visit the ATO’s Super Seeker website and provide your tax file number, name and date of birth.
If you have a myGov login, the easy option is to log into your myGov account. You will need to have the ATO as a linked service in order to access the superannuation section. Click on the Services button then on the ATO link. It will take you to an ATO online services page where you can click on the Super tab and see all of your super fund accounts. From this page you can choose to rollover your super accounts into your preferred superannuation fund.
Macquarie Cash Management Account – New charges & changes
From October, Macquarie will now be charging $2.50 per paper statement delivery if you have a cash management account. This affects the majority of our SMSF clients.
For clients that we use email regularly to communicate with, we have changed the preference on your account to deliver statements online so that you will incur no charges. Statement delivery options can be changed at any time via your Macquarie Online client banking portal.
Other important changes introduced by Macquarie:
- You can now transfer up to $20,000 per day electronically
- Chequebooks are no longer automatically issued/replaced & cost $30 (for 30 cheques)
- Email is now the primary contact method
- Periodic payments can now be managed online
- Bank cheques now cost $10
If you need instructions on how to access Macquarie Online, please call our office on 02 6162 1522 or email admin@veritassolutions.com.au.
Making the most of Macquarie online banking
To minimise new cheque book costs, those who withdraw pension payments can organise a periodic payment to a nominated personal account. Use your personal account to live off and pay bills so as to minimise the amount of cheques being written within the SMSF account. These period payments can now be managed online.
Quick Tip for SMSF clients – how to make it easier for our SMSF accounts staff
When making electronic payments via EFT or BPAY in your SMSF account, completing the reference field with a good description can help our accounts team process the annual SMSF financial statements more efficiently rather than needing to query you regarding every transaction. Using descriptions such as “Pension Payment” or “Asset XYZ purchase” or “XYX Asset Expense” can be really helpful.
Self-Managed Superannuation Fund – Trustee Education
Are you a trustee of a self-managed super fund and want to know more about your duties as trustees? We can direct you to the multiple resources available to assist you in understanding your obligations as trustees of an SMSF or any other information you need to know. At Veritas Wealth Solutions, we believe that all SMSF trustees should have an up to date understanding of what it means to be a trustee and are happy to answer your questions or provide more comprehensive resources. If you would like to know more please call our office on 02 61621522 or email us at admin@veritassolutions.com.au.
2015 Superannuation Essentials Conference
Our resident SMSF expert, Jodie Dickson, has been invited to present a session at the 2015 Superannuation Essentials Conference run by Legalwise Seminars, on 29th October 2015 at the Hyatt Hotel in Canberra. She will be providing a high-level overview on recent ATO rulings, interpretative decisions and other announcements impacting on the SMSF sector. She will also discuss emerging and topical SMSF strategies and SMSF policy predictions for the year ahead. There are several other presentations from various accounting, legal, audit and financial advisory fields. If you would like further information please contact our office.
Are Investment Bonds Right for You?
Investment Bonds (otherwise known as Insurance Bonds) are long-term investment vehicles which may offer tax efficiency to some investors. Investment Bonds are technically life insurance policies under the Life Insurance Act 1995 and require a Life Insured and beneficiaries to be nominated. Investment Bonds can be issued by life insurers and friendly societies. Historically, these bonds incorporated a life insurance element, however most are now purely investment vehicles focusing on wealth creation.
Investment Bonds are designed to be held for at least 10 years, although investors can access their funds at any time. Regular contributions are permitted. A wide range of investment options are available within an Investment Bond structure, including diversified funds, multi-manager funds, Australian share funds, international equities, fixed income and capital guaranteed. Investment Bonds do not distribute regular income to investors. Instead, income is effectively re-invested into the bond to achieve a compounding effect. The current tax system makes Investment Bonds a tax-effective way to generate long-term returns. Investors contributing a lump sum or regular amounts for ten years or more receive ‘tax paid’ returns provided certain conditions are met. Income from investments is taxed at the corporate rate of 30% by the Investment Bond Issuer, meaning investment earnings are not required to be included in an investor’s tax return.
Who should invest in Investment Bonds?
Investment bonds may be suited to:
- Investors with a long-term investment horizon (10+ years)
- Investors with a tax rate higher than 30%
- Investors aged between 65 and 74 who do not currently meet the work test for superannuation
- Investors who have reached their annual contribution limits in superannuation
- Parents / grandparents wishing to invest on behalf of children
- Lower income earners and retirees looking to maximise their potential eligibility for income-tested tax offsets
- Investors seeking to stay under the Commonwealth Health Care Card income limits
- Investors who do not require regular income
Key Features
Tax Paid
One of the features of investing in Investment Bonds over a mainstream managed fund is that it is a tax paid investment. Issuers of Investment Bonds pay the corporate tax rate of 30% on the earnings on the investor’s behalf. Conversely, an investment in a mainstream managed fund generally requires tax to be paid on earnings at an investor’s marginal tax rate. Dividend imputation credits can further reduce the amount of tax payable.
The following table shows the potential taxation consequences of investing in an Investment Bond versus a Managed Fund. The table assumes investment income of $100,000 and a marginal tax rate of 45%.
Funds are accessible
Unlike superannuation where strict conditions of release (including reaching the preservation age) must be satisfied before accessing funds, investors in Investment Bonds have access to their investment at all times.
Regular Contributions are permitted
Unlike superannuation, there are no government-imposed contribution limits.
Assets Test Treatment
Investments held in Investment Bonds are treated as financial assets and are counted as assets under the assets test. Investment Bonds can be used as security for a loan, which is generally not possible with superannuation assets. If a loan is taken out and is secured against the Investment Bond, all financing costs (including interest paid) in relation to the loan may be deductible.
Capital Gains Tax
- Any investment growth received by the investor should ordinarily not be subject to CGT.
- There are generally no CGT consequences for investors who switch between underlying investments strategies within the Investment Bond’s structure i.e. switching between the high growth to capital stable option.
- Where no consideration is passed (gift or inheritance), ownership of the Investment Bond can generally be assigned to another person without any CGT consequences.
- Ownership of the Investment Bond can be transferred to a minor without incurring any CGT consequence under a ‘Child Advancement Option’. A ‘Child Advancement Option’ is a system where the policy is automatically transferred to the child at a nominated age between 10 and 25.
Minors Tax Rates
Earnings on Investment Bonds owned by children under 18 (but over 10) are taxed at 30% (children under 10 cannot invest in an Investment Bond in their own name but can if a parent/grandparent owns the policy).
Death, Illness, Financial Hardship
The Australian Taxation Office (ATO) has advised that the following events constitute a maturity resulting in no assessment for tax:
- Death of the owner of the Investment Bond
- Accident, illness or other disability of the owner of the Investment Bond
- Severe financial hardship
10 year tax rule
If an investor has held an Investment Bond for 10 years or more, earnings do not need to be declared in tax returns and no additional personal tax or capital gains tax is payable. If an investor does withdraw prior to the ten year period, they will need to declare the earnings in their tax return. Tax offsets are available for withdrawals made within the specified withdrawal periods outlined below:
- Within 8 years – All of the earnings are taxed at the marginal tax rate with a tax offset of 30%
- During the 9th year – 1/3 of earnings are tax paid, 2/3 of the earnings are taxed at the marginal tax rate with a tax offset of 30%
- During the 10th year – 2/3 of earnings are tax paid, 1/3 of the earnings are taxed at the marginal tax rate with a tax offset of 30%
- After 10 years – All earnings are tax paid
The 125% Rule
Investors can make additional contributions to their Investment Bond each year of up to 125% of a previous year’s contributions with the benefit of these contributions being treated as if they were invested at the same time of the original investment. Upon expiry of the full ten year term these additional contributions also acquire a tax paid status. If additional contributions exceed 125% a previous year’s contribution, the ten year term will re-set and a new ten year period is deemed to commence. The following examples outline Investment Bond maturity dates under different scenarios:
- Investors can contribute as much as they wish during the first year.
- If investors make additional contributions in excess of the 125% limit, the 10 year period to achieve tax paid status will re-set to the beginning of the investment year that the excess payment was made (as per Example 2, the contribution made in Jan- 2018 causes a re-set as it exceeds 125% of the previous contribution).
- If investors do not make an additional contribution during an investment year, no further contributions can be made without re-setting the 10 year period (as per Example 2, no contribution was made in Jan-2021, causing a re-set when contributions resume in 2023).
- Investors can continue to take advantage of the 125% opportunity after the 10th year, in which case earnings on each additional contribution receive immediate tax paid status
Risks
Some of the risks that should be considered prior to investment include:
- Underlying investment fund risk
Different investment funds have different risk / return profiles. A fund’s profile can be affected by factors such as its strategies, managers, investments, the markets in which it operates and their volatility. Leverage, currency risk, derivatives or less liquid investments might be used by some investment funds. Poor performance of an investment fund can affect the returns and value of the relevant Investment Bond. - Financial strength of the provider
There is the risk that the life company or friendly society issuing the Bond could potentially fail in its financial obligations to its investors. - Taxation risk
As is the case with any investment there is no guarantee that the taxation treatment of Investment Bonds will remain the same.
Who can invest in Investment Bonds?
- Individuals aged 16 years and over
- Children aged 10 – 16 with parental (or guardian) consent
- Parents/grandparents on behalf of children of any age
- Organisations, Companies and Trusts
- Joint Owners