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Self Managed Super Fund (SMSF) Article
The New Super Lingo
By Tony Negline.
This article may be out of date.
8th August 2007
One of the more difficult aspects of superannuation is its terminology. Perhaps a Martian who happened upon a meeting of superannuation practitioners might have difficulty understanding the strange dialect!
The terminology comes from three distinct places – statutory laws, industry practice or company administrative fiat. Most of the time the terminology comes from government rules. When the government changes the rules it often introduces new jargon and acronyms which have to be learnt. It will come as no surprise that the new super laws contain over fifty new terms. You will not need to worry about the majority of these. However whenever the tax office or your super fund communicates with you, they will use some of the new terminology so it’s important to know what they are telling you. Here is a list of 21 new terms which will become common:
- Australian Superannuation Fund (ASF) – this term replaces Resident Superannuation Fund. A super fund will be an ASF if it and its members are based in Australia. Only ASFs get tax concessions; non-ASFs are taxed at 46.5% of income and assets
- Concessional Contributions – these are contributions which are claimed as a tax deduction by the contributor. This also includes the total Employment Termination Payments above $1 million that an employee elects to roll over to a super fund between May 2006 and June 2012
- Concessions Contributions Cap – this is the maximum amount of Concessions Contributions that can be claimed for an individual each financial year. The Cap is $50,000 indexed each 1st July however there are special rules about this indexation. For those aged over 50 a transitional rule exists: between July 2007 and June 2012 the Cap is $100,000 which is not indexed
- Excess Concessional Contributions – Concessional Contributions during a financial year which are above a person’s Concessional Contributions Cap. These contributions are taxed at 46.5%
- Non-concessional Contributions – contributions made to super which are not claimed as a tax deduction; these do not include Government Co-Contributions, contributions specifically made from personal injury settlements, proceeds from the sale of a small business (as long as the total is less than your CGT Cap Amount) or rollover of super benefits
- Non-concessional Contributions Cap – the maximum amount of non-concessional contributions that can be contributed in a financial year. In the main this limit is $150,000 (indexed each 1st July). It is possible for a person under 65 to bring forward three times this amount as a single lump sum however this will limit the amount of Non-concessional Contributions that can be claimed in future years. The super rules do not allow a super fund to accept Non-concessional contributions above this Cap during a financial year. If a person wants to make Non-concessional contributions above the cap therefore need to be made to a different super fund
- Excess Non-concessional Contributions – these are Non-concessional Contributions made above the Cap during a financial year. Such contributions will be taxed at 46.5%
- Death benefits dependant – a deceased’s spouse, child or potentially others
- CGT Cap Amount – this is the maximum that can be contributed to super from the capital proceeds of the sale of an eligible small business. Under old laws some proceeds from the sale of a small business could be rolled over into super. This has been done away with and now those proceeds are contributed under this rule. The Cap is $1 million (indexed each 1 July)
- Roll-over Superannuation Benefit – amounts that are transferred between super funds
- Tax-free Component – the portion of a superannuation benefit paid from the super system tax-free. You add in the Pre July ’83 portion of a super benefit as well as the undeducted contributions and invalidity portions of a benefit
- Taxable Component – the remaining portion of a superannuation benefit once the Tax-free Component has been worked out
- ETP Cap Amount – this is the maximum Eligible Termination Payments that can be paid over an employee after June 2007. Amounts above this cap are taxed at different rates depending on an employee’s age
- Employment Termination Payment – payments made by employers upon an employees termination
- Life Benefit Termination Payment – Employment Termination Payments that are paid to the employee
- Death Benefit Termination Payment – ETPs paid because of an employee’s death
- Transitional Termination Payment – ETPs paid between 10 May 2006 and June 2012 that are based on a written agreement which was in place before 10 May 2006
- Lower Cap Amount – the maximum Transitional Termination Payment that can be paid to an ex-employee before tax applies. This is $140,000
- Upper Cap Amount – the absolute maximum of Transitional Termination Payments ETPs to an ex-employee before additional tax will apply. This is $1 million
- Directed Termination Payment – a Transitional Termination Payment that an employee wants rolled over to a super fund. Directed Termination Payments above the Upper Cap Amount form part of the employee’s Concessional Contributions made during a year
- Superannuation Income Stream – the new pension or annuity that can be paid after June 2007; these income streams have a minimum based upon a percentage of the account balance. The percentage is based upon the recipient’s age.
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