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Superannuation: Basic Principles

These days we all invest in Superannuation. Since the introduction of the Superannuation employer guarantee scheme in 1992, employers must withhold from salary earners’ pay-packets a prescribed percentage (currently 9.5% per centum) of their gross employment remuneration and remit that money to either:

(a) an industry superannuation fund established for the particular benefit of members of specific industries;

(b) a retail superannuation fund operated by large insurance companies or financial institutions with investment businesses e.g. Colonial First State, AMP, National Mutual Bank; or

(c) the employee’s Self Managed Superannuation Fund (SMSF) 

Subject to defined limits, every employee may salary sacrifice their before tax wages as a “concessional” contribution or pay their after tax money as a “non-concessional” contribution into their superannuation fund.  A concessional contribution may be claimed as a deduction in the member’s tax return in the fiscal year it is made but a non-concessional contribution cannot be claimed as a deduction.  If the concessional payment is made by the employee’s employer by way of salary sacrifice, the maximum tax on that concessional payment is effectively 15% which is paid by the superannuation fund, not the employee.  Subject to age restrictions, the non-concessional contribution for the 2015/16 year is limited to $180,000 or $540,000 if paid in one year in respect of 3 years and the employee is under age 65 – see the ATO Fact Sheet NAT 74548 on the ATO’s website for details regarding the prescribed restrictions on concessional and non-concessional contributions to superannuation funds.

Once money is in a superannuation fund, it is beyond the ownership and control of the employee. For this reason when making a Will a person should give separate consideration to how to treat their superannuation but in a way which will not prejudice the people to whom they would normally provide for under their Will.  It is essential to remember that a person’s benefits in a super fund pass in accordance with the terms of the super fund trust deed and will not pass under a person’s will unless the trustee pays those benefits into that person’s estate in accordance with the terms of the super fund trust deed.

The Superannuation Industry (Supervision) Act 1993 (SIS Act) and its regulations set out rules which must be observed by the trustee of a superannuation fund, especially at the time those funds are being distributed after the death of a member – see the ATO website for details in this regard.

Authors: Josephine Heesh & Peter Carroll

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