Tax Tip 147: How to Earn $95,000 pa and pay No Tax

Sorry, missed this thread till now.

My understanding is that the $1.6m cap only applies to "non-deductible" contributions. "Deductible" contributions are only limited by age? Otherwise even auto super guarantee contributions would have to be rejected if the employee has more than $1.6m in Super.

Must admit I've been holding off on extensive research into the changes and potential strategies I might take advantage of until the technical implementation issues have been sorted.

Keen to hear if my above understanding is correct?

 

@austing I am thinking of hedging my bets, investments in super, investments out of super and also considering an investment company.

 

Sounds good, maximise the benefits of each. If early retirement is desirable having assets outside of Super is important in most cases. Seek advice on this though, you might be surprised.

As a retiree having reached Super preservation age (55, just scraped in) our strategy is along the following lines:
1. Max out $1.6m tax free Super pension.
2. Hold enough assets outside of Super in Disc Trust to max out personal tax free thresholds.
3. Get as much as possible over $1.6m through deductible contributions (if allowed, see previous post) into Super Accumulation to limit tax to 15%.
4. Remainder mostly held in Disc Trust. Other structures could be added but trying to keep things simple.

Franking credits play a vital role in all the above.

Fortunately I already have in excess of the new Super cap (accumulated under old rules) which will be rolled back into Accumulation taxed at 15%.

Even under the new Super rules a couple can still earn a sizable income if invested well and pay very little tax.

 

Sounds good to me @austing

 

Wrong. $1.6m is the total of member pension balances held in super, that is PER member across all funds. I will post a separate summary of how it works.

Contribution caps (concessional, non-concessional, bring forward and the proposed look back catchup) are a lesser subset of the maximum balance limits.

 

Hi Paul,

Thank for that.

Of particular interest to me is whether a member with a $1.6m balance is still able to make a SPOUSE SPLIT concessional contrbution?

Look forward to your summary. Now that the changes are law and technical details are being fleshed out I was about to start drilling down into the detail. So your summary will be most helpful.

Cheers

 

@Terry_w would the $95K 'tax free' amount increase by at least inflation or would it still be only $95K 'tax free' say, 10 years from now.

Hooe the question makes sense. Just want to know if inflation erodes the figure above.

 

You would need to get out your crystal ball to predict tax rates.

 

I just ran the figures with taxcalc.com.au and the amounts would be the same this tax year as in the opening post.

What I guess you are getting at is if the standard of living will be eroded by inflation. The answer is yes, unless tax rates reduce or there is deflation. But this would probably be the same for most investments.

 

Yes that was what I was getting at. Tx

 

@kierank - are you reffering to Insurance as an asset protection in SMSF?

 

Insurance in super cant truly be asset protection. Its death cover.

 

Thanks @Paul@PFI, hence I asked the question because SMSF is one of those dynamic subject (for me) that I do not have complete understandibg to decide if it is good vehicle for me or not.

 

Your question requires licensed financial advice

 

The shares inside a SMSF would not be available to your creditors if you were to become bankrupt - generally. This is not related to insurance.

 

So, @Paul@PFI snd @Terry_w, originally this thread was about using franking credits. With the Labor proposal on the table, how would it affect the bottom line if Labor win the election and implement this policy?

 

It will depend on the wording of the legislation. I haven't seen any proposed drafts yet.

 

And if all goes well, you never will.

 

What @Terry_w ssid.

 

Thanks @Terry_w and @kierank