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Superannuation and Tax Expository Essay

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Updated: Mar 25th, 2019


This is a detailed report on superannuation and tax implications on SMSF (self managed super fund).Superannuation is a project or rather a system that is used in Australia with the aim of securing the old people and their plans in terms of investments. This is where a regular or a repetitive payment is made by somebody towards their retirement.

This happens through periodic reductions of somebody’s income made towards the superannuation. In this research, we will look at the certain implications of superannuation and tax on certain actions. The main aim or advantage of superannuation is that when contributions are made from ones income, tax is lower.

This is according to Dale and Ralph (1993) However; there are rules that govern superannuation. Loopholes or disadvantages that will make this program fail might appear or take shape if regulations are not put into place. According to Myra this are the regulations she hopes will be effective so that her husband does not lose her money.

Methods of research

Through a vigorous investigative exercise, enough information was gathered on the various rules that govern superannuation. The sources for this information included library materials and a small use of questionnaires. The questionnaires were used on tax professionals and financial writers who have been in this field over the years. It took a week to conclusively come up with the relevant information.

An in-depth look at superannuation and tax

Preservation age: This is the first basic rule about superannuation fund. It means that one cannot access the fund until they reach a certain age limit. Here, the age limit is 55 years of age. According to research made by CCH Australia (1994), Contributions made towards the superannuation fund are made by people below the age of 55.

According to the Australian rules also, any person born before the first day of July, 1960 has the preservation age set at 55. Those born later have varying preservation ages which depend on other months of birth. We must remember that the main aim of coming up with this program was to secure the future or the retirement life of the contributors. One cannot withdraw unless they have not reached the specified age.

Lump sum withdrawal: Lump sum here means that of a large quantity. If a lump sum withdrawal is made, tax has to be deducted. Again we must remember that the aim of the superannuation program is to secure the entire retirement life, but not one moment. There is also the medical levy issue.

It is enforced on any lump sum withdrawal. A point to note here is that lump sum withdrawals are highly discouraged. Many people will avoid this withdrawal as they will be taxed. An example here is when one has a collective amount of 100000 dollars and decides to withdraw 90000 of that during retirement: it must be subjected to tax again altogether. (Chris 2007)

Employee contributions: An employee is anybody under the financial rules somebody else. An employee is subjected to rules and regulations of his boss. Also to note here is that, for an employee, his or her salary is fixed. According to Charles (1990), an employee may decide to issue an order towards his monthly or annual salary.

The order here is to direct a certain amount of this salary towards superannuation. Usually a contribution of 9% of income is made towards this program. Of course, one may decide to contribute more depending on wishes and current financial obligations. A key, important factor to note concerning this is that these are

Self employed contributions: Stuart can contribute 25000, somebody who is self employed is that who has had varying income amounts. They are their own bosses and control the financial activity of the business. Examples of these people are entrepreneurs and moguls. The rules on superannuation differ because contributions towards the retirement fund differ according to the performance of the business and the different occurring needs.

The deduction is made before the income is taxed. Here, tax is deducted on any contribution of up to 5000 dollars. Three quarters of Any amount above that are taxed, a closer look into this regulation imply that the more the amount contributed above the 5000 mark, would simply mean the less the tax in terms of percentage to the original amount.(Grant 2008)

Any person willing to make a contribution towards the superannuation program after his or her income is taxed is free to do so. In this case, the contributions will be tax free (Anon 1984).

However, Current changes on laws regarding superannuation. As discussed earlier, one who is employed can sacrifice about 9 % of his salary. This is set to be raised to 12 %. It will have a greater pinch to the employee’s salary. But on the brighter side after many years of cumulative withdrawal, this will be a larger amount.

Those who contribute around 50000 dollars will not have this cut down to 25000 dollars as expected. This figure is set to be retained. This also like the first rule will mean larger amounts will be saved.

Here are some of the recommendations Myra should consider

Benefits of SMSF

After finding the rules and regulations of superannuation, the relevance of the above actions on self managed super fund could be easily traced and be used. This means that superannuation can be used to hatch a good investment during retirement.

Self managed super funds (SMSF); this is a financial term or activity which means that the contributions made towards a superfund are used to come up with a business scheme. According to the latest research (James, et al, 2009) the contributors themselves manage the money.

All of them are above the age limit of 65, and nobody is above the other. The members must not be more than five. All activities of the business are carried by the members. Also, important here, is that all the members take part in the management of the business. Authoritatively, all are equal. Stuart will be in charge of his money. The main benefit of the self managed super fund is that there is a merger of contributions to come up with a bigger capital base for a business opportunity.

Tax free fund is used to run the scheme: this will be cheaper for Stuart to invest. Unlike a normal retail enterprise that uses taxed money to operate the self managed super fund is different meaning that a considerable large amount of money will put up a business. Also, here there is no tax issued on any capital gained when a self managed super fund starts making profits.

We have to remember that the self managed super fund run on money invested by the contributors with the aim of securing their retirement. Stuart can claim 25000 as tax deduction. A maximum of 15 % tax is deducted on the earnings. Tax cannot exceed the given percentage but can in some cases fall to 0%. Myra should not be worried as Stuart’s money will not be taxed.

What happens when one transfers shares to a super fund?

One can transfer his or her shares to a superfund to an SMSF to reduce or offset tax. This can be offset by the use of imputations credits. (Taylor, et al 2010) Imputation credits are in a system whereby one buys shares from the company in case he or she has tax to buy. This system reduces the amount of tax to be paid and at the same time increases the business share volume.

Pension: This being the monthly “salary” for the contributors is tax free. Lisa (2010) clearly explains that, unlike the income from the business which is minimally taxed, the pension is not. Here, we must note that the pension is like a form of monthly withdrawal system of the money that was saved during early years. It is zero taxed.

In some cases, death of a member of a self managed super fund organization may occur. Here, a system to ensure that the benefits passed on to the inheritors are not taxed is put in place

Other benefits of self managed super funds fee over other funds are:

We have to remember that superannuation is managed by the members who are the contributors.

A study by the national library of Australia (1984) showed that, there are no extra or added fees on the SMSF. Other funds have to consider management fee, termination fee, audit fee, account balance fee, administration fee, contribution fee and even withdrawal fee. This entire fee is not included in SMSF.

Also member can have his or her value on the sums passed down to their generations. Just like the essence of a will is to hand down your wealth to the future generation, ones share can also be handed down.

There are also freedoms that are enjoyed by the self managed super fund groups according to Jimmy (2011) these are:

A super managed super fund can be allowed to deposit its funds with any bank. It cannot be limited to any banking institution. Members can choose their banker depending on the most suitable policies towards them or their businesses.

It can also insure its property against unforeseen circumstances with the insurance company of its choice. Again here it cannot be limited to any or special firm due to its nature. The fact that dealing with people of the old age may tend to put the members at a larger risk. This may in turn make one think that this needs a special insurance. The truth is that it does not. (Kumar, 1995)

A self managed super fund is not also limited to a selected service provider, engineer or a planner. According to a report by CCH Australia Limited (1994), it is free to select or appoint its services from whom it requires. The government or any other institution is not allowed to intervene with the activities of the self managed super fund by dictating from whom it may acquire its services.

Members look for their services from the best provider or who they deem fit for operating or carrying out a task. A team of highly experienced tax and finance professionals (1999) found out that, for this to happen, it has to take place via the consent of all the members of the self managed super fund.


A super managed super fund uses the money from superannuation to run its activities. All members are the contributors and are involved in running of the business. Due to the nature of the fund any money allocated to the members as pension is not taxed. The main aim of the super managed super fund is to pull funds together to realize a larger business capital source.

This source is greater in volume than a normal retail as it is untaxed fund or superannuation. Supperannuation rules change only to benefit those involved; Stuart should not be scared of these rules. This means it will put up a larger business. Mendel (2011)


CCH Australia Limited, (1994), Australian master tax guide, Volume 1994, CCH Australia Limited.

Charles A S, (1990), Staples’ Guide to New Zealand Income Tax Practice, Taylor & Francis CCH Australia Limited, Australia.

Chris A, (2007), Howard’s fourth government: Australian commonwealth administration, UNSW Press.

Dale W. J, Ralph L, (1993), Tax reform and the cost of capital: an international comparison, Brookings Institution Press.

Editor-in-Chief Mendel, CCH Australia Limited, (2011), Australian master financial planning guide, CCH Australia Limited, Australia.

Gerald. E, Whittenberg, Martha Atulus-Buller (2010), Income Tax Fundamentals: Cengage Learning, 2009 Stamford USA.

Grant A, (2008), Self Managed Superannuation Funds Strategy Guide, CCH Australia Limited, Australia.

Iris C, (2010), Tax reform in open economies: international and country perspectives, Edward Elgar Publishing.

James L, Shirley M, Giles H, (2009), Australian master superannuation guide, CCH Australia Limited, Australia.

Jimmy B. FCPA, (2011), Superannuation and Taxation: A Practical Guide to Saving Money on Your Super or SMSF, John Wiley and Sons Press.

Kumar D, (1995), Title Managerial finance in the corporate economy, Routledge, London.

Lisa M, (2010), the Politics of Retirement Savings Taxation: A Trans-Tasman Comparison, CCH Australia, Limited.

National Library of Australia, (1984), APAIS, Australian public affairs information service: a subject index to current literature, National Library Australia.

Salvador V. (1999), the Economics of Pensions: Principles, Policies, and International Experience, Cambridge University Press.

Taylor S, et al, (2010), Financial Planning in Australia 4th edition, LexisNexis Butterworths, Sydney.

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