Many Australians continue to ask the question “what is superannuation” because for a great government policy it has been so poorly explained to the Australian people.
Put simply Superannuation is the most tax effective investment vehicle for Australian investors to build wealth for retirement. The tax benefits of Superannuation can be significant but with those benefits are some very stringent rules ensuring that the core purpose of superannuation is to build wealth for retirement.
What is superannuation? Tax effective
Superannuation is taxed at a rate of 15% on income and 10% on capital gains if the investment is owned for more than 12 months. Superannuation contributions can be made to super from before tax earnings and a contribution tax of 15% applies to those contributions provided you stay within certain limits. The real difference can be seen in the table below depending on your personal tax position.
If you are earning over $300,000 pa you may be taxed at a rate of 30% into superannuation.
As can be seen you could be nearly 40% better off by contributing and investing through superannuation after one year than investing in your own name.
What is Superannuation? A trust from which investments are made.
Superannuation is not a good or bad investment. The assets invested within a superannuation fund and the performance of those assets is what will dictate how the fund performs and wether the investment has been good or bad. Superannuation funds can invest in many of the same assets that you can invest in directly in your personal name: such as cash, term deposits, fixed income bonds, Australian and International shares, residential and commercial property, the list goes on. It is the trustee of the superannuation fund and compliance with the superannuation Industry Supervision Act that will be the main determinant in how your assets are invested. Some superannuation trustee may only provide one or a handful of pre-set options such as the trustees of many Industry superannuation funds. Trustees from retail superannuation funds may provide hundreds of options while if you are the trustee of your own self-managed superannuation fund the investment options can be almost unlimited.
What is Superannuation? Compulsory savings for employees
If you are an employee in Australia earning more than $450 per month chances are you are eligible for superannuation guarantee payments from your employer. Without getting technical the current rate is 9% of your wage increasing to 12% over the next few years. Chances are your superannuation will become your greatest asset, so ensure you make the right choices and contact an advisor who is working for you and get the best advice on Superannuation.
So what is superannuation? Superannuation is the most tax effective investment structure, which may one day become your greatest asset.
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