Calculating how much super you will need when you retire

Calculating how much super you will need will help you decide whether you should be contributing more to your super. You can utilise salary sacrifice schemes to increase contributions, especially if you are not using your entire salary.

There are two main factors that impact the amount of super you will need when you retire:

Costs in retirement

Consider the major costs that you will need to continue paying during retirement. Examples include:

• Paying off your mortgage
• Rent
• Renovating your income
• Travel
• Medical costs

Estimate how much money you will be needing for each of the aspects that apply to you. Make sure that your estimations are as realistic as possible. Some things, such as medical costs, may be difficult to accurately estimate, so try to keep a higher margin.

The lifestyle you want

Think about what sort of lifestyle you want once you retire and consider how much money that will require. The Association of Superannuation Funds of Australia provides an estimation of how much money you will need depending on what sort of lifestyle you want:

• Single and modest lifestyle: $27,987 a year
• Single and comfortable lifestyle: $43,901 a year
• Couple and modest lifestyle: $40,440 a year
• Couple and comfortable lifestyle: $ 62,083 a year

These are estimations and the numbers may be different depending on your circumstances and lifestyle.

Trustees and beneficiaries registering for tax in trusts

Trusts have their own tax file number (TFN) that should be used to complete tax returns. Trusts are also able to apply for an Australian business number (ABN) on the condition that the trust is carrying on an enterprise. If a trustee applies for a TFN or ABN, then this is in the capacity of a trustee and is separate from any other registration the trustee may require for other capacities.

Trustees

The trustee is responsible for managing the tax affairs associated with the trust. This includes registration of the trust in the tax system, lodgement of trust tax returns, as well as paying certain tax liabilities.

Beneficiaries

For beneficiaries, their share of the trust’s net income is included in their tax returns. Further, payments on the expected tax liability may need to be made, for which the pay as you go (PAYG) instalment system can be used.

Basics of SMSF investing

Setting up an SMSF fund is the simplest step. Establishing a fund which delivers you consistent returns from your investments is much more difficult.

Investing successfully involves determining precise goals and picking investments which will effectively achieve those goals. The advantage of SMSFs is that you can build a portfolio which reflects your short-term and long-term goals in response to changing market conditions.

In an SMSF fund, your investment options are:

• Australian and international shares (listed and unlisted)
• Residential or commercial property
• Cash and term deposits
• Fixed income products
• Physical commodities
• Property
• Collectibles

Before you begin investing, consider what might be the best way to diversify your portfolio. How you portion your investments will depend on your funds, the market, and your goals. Regardless of what your plan is, diversification should be a priority.

Choosing an SMSF as opposed to an industry or retail super fund provides you with more flexibility, but also with more responsibility. Researching before investing is key if you want the best out of your SMSF.

Taxation of your unused leave when leaving a job

When your job ends, whether there has been a termination of employment or redundancy you will receive a payment for unused leave. This payment will be taxed differently from your normal income.

The taxation will vary depending on the reason why you left the job and any unused entitlements that have been accrued over your employment (long service leave or sick leave).

Lump sum payments that you receive for unused annual leave or unused long service leave are taxed at a lower rate than other income. These lump sum payments will appear on your income statement or payment summary as either ‘lump sum A’ or ‘lump sum B’.

These payments may also be taxed differently if you lost your job as a result of Covid-19.

Protecting yourself from super scams

Superannuation is an attractive target for scammers as a significant volume of funds are placed into super funds by Australians.

There are some straightforward steps you can take to protect yourself from super scams.

Know the rules

• Becoming familiar with the rules surrounding superannuation will alert you against scams which make false claims e.g. offering early access to your super
• Keep up to date with the relevant authorities and so that you don’t put in your personal information into the wrong websites – always check that relevant institutions have verified their authenticity!

Check your balance and contact details

• Check what your super balance is on a regular basis – if you notice something that doesn’t quite look right then immediately get into contact with your super fund and ask them about what could have happened.
• Every once in a while, check that your super fund has the right postal address, email address and mobile number – this will help them get in touch with you if they spot any suspicious activity.

Stop identity theft

• Taking the steps to stop identity theft will also help protect your super
• This does not have to be all too complicated e.g. shred important documents, change passwords every few months, etc.

Fuel tax credits for businesses

The government provides fuel tax credits for businesses with a credit for the fuel tax (excise or customs) that is included in the price of fuel used in machinery, plant, equipment, heavy vehicles, and light vehicles travelling off public roads or on private roads.

Fuel tax credits a business receives depend on when the fuel was acquired, which fuel you used, and what it was used for. Since fuel credits change regularly, it is necessary to check rates each time the business activity statement (BAS) is filled out.

Eligibility

• Certain fuels and activities are not eligible
• Must be registered for GST when fuel was acquired
• Must be registered for fuel tax credits when you lodge the claim

Finding your lost super

Changing of name, address or job can mean that you lose track of some of your super. This means that there is money that belongs to you that is not currently in your super fund. Finding your super will collate your previous lost funds with your current account.

It is likely that your lost super is held by the ATO. Create an account on myGov and link it to the ATO and select ‘Super’.

Once you have done this, you will be able to see the details of all of your past and current super accounts including any lost or forgotten ones. You will also be able to find funds which have been held by the ATO on your behalf. Further, you will be able to consolidate your super funds into a single fund.

Once you have found your lost super, remember to conduct research about which fund is providing you with the best returns before you choose which fund to consolidate with.

Lodging your business activity statement

Businesses that are registered for GST are required to lodge a business activity statement (BAS). These assist in the reporting and payment of:

• Goods and services tax (GST)
• Pay as you go (PAYG) instalments
• PAYG withholding tax
• Other tax obligations

ATO will automatically send businesses who are registered for an ABN and GST a BAS when it is due for lodgement.

Businesses are given various options to lodge their BAS:

• Online services for individuals and sole traders – which may be accessed through myGov
• Business Portal – which is a secure website created by the ATO to assist businesses in managing their tax online
• SBR-enabled software – which allows access to lodgement from different financial, accounting and payroll software and can be integrated to industry-specific business software.

Life insurance through your super

Over 70% of Australians have life insurance through their super fund. This acts as a financial safety net through your super if something unexpected happens.

There are 3 main types of life insurance that super funds usually provide:

• Life cover: Also known as death cover, this type of insurance pays a lump sum or income stream to beneficiaries when you die or have a terminal illness.
• TDP (total and permanent disability) insurance: If you become disabled or it is unlikely that you will be able to work again then this insurance will pay you a benefit.
• Income protection insurance: Also known as salary continuance cover, pays a regular income for a specified period (length of time or up to a certain age) if you are unable to work due to temporary disability or illness.

Pros of life insurance through super

• Cheaper premiums: Super fund buys insurance policies in bulk so it is cheaper for their customers
• Easy to pay: Automatically deducted from super’s balance
• Fewer health checks: Super funds accept default level of cover without health checks – particularly useful if you have a high-risk job or health conditions. But, remember that you should check the product disclosure statement (PDS) to see exclusions and treatment of pre-existing conditions.
• Increased cover: You have the flexibility to increase your cover above the default level but you may need to answer some questions about your medical history.
• Tax-effective payments: Employer’s super contributions and salary sacrifice contributions are taxed at 15% which is lower than the marginal tax rate for most people.

Cons of life insurance through super

• Ends at age 65 or 70: While outside of super, your cover will continue as long as you are paying premiums, but TDP and life insurance tend to end at 65 and 70 respectively.
• Limited cover: Since default insurance isn’t specific to your requirements, your cover might be lower than what you would receive outside of your super.
• Cover can end: In some cases, changing your super fund can cause your contributions to stop or your super account to become inactive – this will end your cover and you will end up with no insurance.
• Reduces your super balance: Since premiums are deducted from your super balance, you will have fewer savings for retirement.

What do tax audits involve?

Tax audits are conducted when the ATO deems that a more extensive examination of an issue is necessary. These audits can be conducted on a fairly basic level or they can be much more in-depth and analytical.

In most cases, there will be a review which then leads to an audit, but this isn’t always necessary. A review may not be deemed necessary in cases where fraud or evasion is suspected or there is a high risk associated with the transaction.

The ATO states that they will be transparent about the following aspects of an Audit:

• Scope, periods under audit and expected completion date
• ATO’s risk hypothesis and information required to assess the hypothesis
• Choice of channel to provide information to ATO
• How audit will be conducted (key milestones and relevant guidelines)
• Advantages of, and procedures for, making voluntary disclosures
• Expectations from individuals/businesses when information has been requested for records
• Circumstances in which ATO can be expected to use their formal powers

Cooperating with the ATO’s requests is the ideal response. If there is a lack of cooperation, then the ATO can use their formal powers to access the information they are seeking:

• Notice powers: Require you to give information, attend and give evidence or produce documents
• Access powers: Give free access to the ATO to all places, books and documents and require that assistance be given to ATO’s officers to exercise their powers.

Cooperation makes this process much easier for both parties as a lack of cooperation can not only create a bad image but can be easily overcome by the ATO’s powers.