91ºÚÁÏ

Super and tax changes have been in the news lately, so you might be wondering how the SASS scheme is taxed; both while you’re contributing and when you eventually leave the scheme. Between contributions, investment earnings and final payouts, there’s plenty to consider. Let’s take it back to basics. Ìý

SASS is a defined benefit super fund, which means the way your benefit grows - and how it’s taxed - is different to standard super funds. Because part of your benefit is determined actuarially (not just accumulated) the tax treatment is more complex and not all ATO rules apply in the same way as other super funds.

Tax while you’re contributing to SASS

For tax purposes, there are two types of contributions to super. Concessional contributions (before-tax) are taxed at 15% when received. Non-concessional (after-tax) contributions are not taxed on entry.Ìý

For SASS members, if you are salary sacrificing your personal contributions to SASS, they will count towards your concessional contributions cap and get taxed at the concessional rate of 15%, otherwise they will be paid from your after-tax salary and count towards your non-concessional contributions cap.

While you're contributing to SASS, any investment earnings on your Personal Account and SANCS are taxed up to 15%, just like in most other super funds. This tax is taken out before the earnings are credited to your account.

Contributions caps for SASS members

The ATO applies annual limits on how much you can contribute to super before additional tax applies. The current caps are $30,000 for concessional (before-tax) contributions and $120,000 for non-concessional (after-tax) contributions. Exceeding these caps may result in extra tax. The way contribution caps are applied is different for members of the SASS scheme Ìý

In addition to your salary sacrifice contributions, there is also a notional employer contribution that will count towards the concessional contributions cap ) So it’s important to include these when working out how much room you have under the cap to make additional contributions into your super. To find out more about notional contributions go to Contribution caps and SASS.

Many SASS members will have a special cap protection which means any concessional contributions made to your SASS account are always considered to be within the cap as long as you haven’t lost that protection. In fact, SASS will only report up to the cap amount to the ATO, even if your actual contributions are higher^*.

So, when would you lose this special protection? Only if you moved to a higher benefit category than the one you were in on either 12 May 2009 or 5 September 2006. These dates are important because they mark when the government changed the rules around concessional contributions. To protect defined benefit members from being unfairly impacted, a safeguard was put in place but it only applies if you’ve stayed in the same benefit category since then.

Just keep in mind, even with this protection in SASS, it’s still possible to go over your concessional cap if you’re also making additional employer or salary sacrifice contributions to another super fund. So if you have more than one fund, it’s worth keeping an eye on the total.

A note about Division 293 tax and SASS

Division 293 tax, introduced on 1 July 2012, imposes an extra 15% tax on concessionally taxed super contributions for high-income earners. This is an individual tax, not a super fund tax, and applies to total concessional contributions, it is not subject to cap protection.Ìý

ÌýIf you elect to not pay the tax personally, a debt account with the ATO is created and Division 293 tax attributed to it. You will receive a statement of account from this debt account whenever the account balance changes, so you can keep track of your deferred liability which becomes payable to the ATO by you when you make an application for benefit payment. You will have the option for this deferred debt to be paid from your SASS benefit before it is paid to you.

What happens when you exit SASS

Leaving SASS triggers a change in how your benefit is handled and taxed. Your total benefit will include your Personal Account, your Employer Financed Benefit, and any other accumulation accounts like SANCS.

If you’re aged 60 or older, the good news is your benefit is paid to you net of any contributions tax and will be tax-free no matter how you choose to take it. In the limited situations where you can access money in super under 60, some tax may apply to parts of your benefit depending on how it’s made up and how you access it.

You’ll have a few options when you exit. You can take your benefit as a lump sum, transfer it to another super fund, or do a bit of both. Most SASS members choose to stay in super: in fact, more than 80% of pre-retirees and 70% of deferred members roll their benefit into a super fund rather than cashing out.

Why? Because investment earnings in super are tax-free once you move into a retirement income account (subject to the transfer balance cap), and your money is professionally managed and diversified. In contrast, if you take the money out and invest it yourself, say, in property or shares, you pay income tax on your returns and potentially even capital gains tax if you sell later at a profit.

To understand how much tax you’ll pay there a couple of things to consider:

• If you are 60 or older, you will not be taxed on money taken as a lump sum from SASS.

• In the limited circumstances where you can withdraw super before age 60, the tax-free component will still be tax-free. You may pay some tax on the taxable component, the amount will depend on whether you access the money as a pension or as a lump sum. Ìý

• The taxable component of your super is important in estate planning, regardless of your age. Non-dependents who receive your super after your death may face tax implications.

A note on the proposed $3 million super tax

Prior to the last federal election the government had proposed applying an additional tax of 15% on earnings¹ from super above $3 million. New legislation is yet to be reintroduced to parliament.

The government had previously confirmed that defined benefits will be included in the $3 million threshold, but the final method for valuing these entitlements is still being worked out. For defined benefit members like those in SASS, it’s more complicated.ÌýÌý

If your total benefit, including your SASS entitlement and other super, could exceed $3 million, it’s a good idea to speak to an 91ºÚÁÏ financial planner. Ìý

¹ The definition of earnings within the proposal includes both realised and unrealised gains, this may be subject to change in the final legislation.Ìý

Where to next?

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Market review and outlook

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