From 1 July 2012, persons with “income” exceeding $300,000 are subject to an additional 15% tax on any “taxable contributions”.

So let’s have a look at what income means? Income is taxable income (including the net amount on which Family Trust distributions tax has been paid) total net investment losses (including net financial investment losses and net rental property losses).

For example, if a person age 60 has income of $290,000 and makes concessional contributions of $35,000 into superannuation during a financial year, $25,000 of their concessional contributions will be subject to an extra 15% tax, in addition to contributions tax of up to 15% paid by their super fund.

So what’s the benefit of a TTR strategy?

Generally, the objective of a TTR strategy is to increase a person’s retirement savings while saving them tax. This is done by recommending that persons make salary sacrifice contributions to super, reducing their TTR taxable income. The person then rolls over all or a portion of their accumulation account to a TTR pension and draws an appropriate level of pension income to make up for the income that they’ve lost by salary sacrificing.

Earnings tax benefit

Once a person commences a TTR, the earnings on assets held in a superannuation fund are “tax free” compared with being taxed at up to 15% while in accumulation phase.

What about persons age between 55 and 59 earning over $300,000 pa?

This is where persons in this category really need financial advice. Persons aged between 55 and 59 will pay tax on the taxable component of their pension payments at their marginal tax rate and will be entitled to a 15% rebate. This means persons implementing a TTR strategy will pay 30% tax on the concessional contributions they made and then a similar rate on the taxable portion of the pension payment.

So what about persons over age 60 – is a TTR strategy still worthwhile for these persons earning over $300,000 pa?

This is a different scenario. For persons aged 60 and over (and in a taxed super fund) have the benefit of being able to draw an income stream “tax-free,” regardless of the tax components within their TTR pension. Therefore the only tax payable in a TTR strategy for these persons will be the 30% on the amount salary sacrificed.

This is still less than the highest marginal tax rate which they will be paying on income “outside” the super environment.

As a result, there will always be a small tax saving.

What about if all my money in super was a tax free component?

A TTR strategy for persons aged between 55 and 59 is very attractive if a high proportion of a person’s component in their superannuation is “tax free.”

It will provide the same result as a person over age 60 commencing a TTR.

However, it is highly unlikely that a person between 55 – 59 will have such a high proportion of tax free component in their superannuation fund.

One way to build your tax free component in superannuation is for a person who has money outside of super to contribute these contributions into superannuation. That’s another strategy to look at.

Certainly it is no easy question to answer whether or not a person should commence a TTR strategy who earns over $300,000 per annum. As always seek good financial advice.

TTR-transition-to-retirement

More About -- > 

David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

Categories: Financial Planning, General News, Retirement Planning, Superannuation   |  Posted on
Tags: , , , ,

comments

Leave a Comment