Brush up on the super lexicon with our extensive glossary:
15% pension offset: A 15% pension tax offset is available against your assessable pension income if you use your super money to purchase a pension income stream. This tax offset will reduce your tax liability.
Account-based pension: A regular retirement income stream that you can purchase with money in your super fund after you have reached the preservation age.
Accumulation phase: The accumulation phase is the first stage of everyone’s superannuation life – when you are contributing to your superannuation account, or when your super balance is accumulating. All the contributions you make during the accumulation phase are ‘locked away’ (preserved) until your retirement.
Actuarial certificate: A document prepared by an actuary that certifies how much of a self-managed super fund’s earnings are derived from its members’ accumulation phases and how much from retirement phases. This information has tax implications. It is used to claim exempt current pension income (i.e. tax-exempt earnings) in the fund’s annual tax return.
Adjusted taxable income: An Australian Taxation Office (ATO) calculation used to determine a person’s eligibility for some government payments and services. It includes taxable income, some tax-free government pensions and benefits, reportable fringe benefits, reportable super contributions, super pension income streams, net investment losses and foreign income.
Age Pension: A payment from the Australian Government for eligible people who have reached the Age Pension age, meet the residency requirements, and pass the assets and income means tests. See articles about the Age Pension.
Age Pension age: The age at which you become eligible to receive the age pension. This varies depending on your date of birth. It is currently 65 years and 6 months and will progressively increase to 67 for all Australians by 1 July 2023.
Age Pension assets test: Part of the means test (along with the income test) applied by the Australian Government to determine eligibility for payment of the Age Pension. There are asset thresholds that you must fall within to be eligible to receive a full or a part pension.
Age Pension income test: Part of the means test (along with the assets test) applied by the Australian Government to determine eligibility for payment of the Age Pension. There are income thresholds that you must fall within to be eligible to receive a full or a part pension.
Age Pension work bonus: The work bonus provision of the Age Pension income test allows a person to earn up to $300 per fortnight if they’re still working, without this amount being included in their income test. This work bonus amount can be accumulated up to an amount of $7,800 in any one year. A person can therefore still earn this amount from working without it affecting the Age Pension rate that they’re entitled to.
Annuity: A retirement income product that guarantees regular payments over a pre-defined period (or for life). The payment conditions are determined when you purchase the annuity. Payment amounts depend on the amount you contribute plus actuarial calculations. Annuity payments protects your rate of return against movements in financial markets. See articles about annuities.
ASFA Retirement Standard: The ASFA retirement standards are benchmark annual budgets intended to reflect the amount a person would need to fund either a modest or a comfortable standard of living in retirement. These amounts are updated quarterly by the Association of Super Funds Australia (ASFA), an industry body whose members include super funds and service providers from the corporate, industry, retail and public sectors. The standard to fund a modest retirement lifestyle is intended to provide a slightly better standard of living than the Age Pension, while a comfortable retirement lifestyle is approximately 50% higher.
Assessable income: Your assessable income must be declared on your tax return each year. It includes your employment income, super pensions and annuities, government payments, investment income, business, partnership and trust income, foreign income and crowdfunding income.
Asset allocation: This refers to the assets you choose to invest in. Asset allocation allows you to customise your mix of assets across your super balance.
Asset class: A category of assets that a super fund can invest in (such as cash, fixed interest, shares, property or unlisted infrastructure).
Australian Financial Complaints Authority (AFCA): AFCA provides a dispute resolution service for the financial industry. They are authorised to hear complaints from consumers or small businesses about credit, finance, loans, insurance, banking, investments, financial advice and superannuation. ACFA replaced the Financial Ombudsman Service, the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal.
Australian Financial Services Licence (AFSL): An AFSL licence is required to conduct a financial services business in Australia. The licence is issued by the Australian Securities and Investments Commission (ASIC). Any organisation (including super funds) or individual cannot provide financial advice unless they hold an AFSL.
Australian Prudential Regulation Authority (APRA): An independent regulatory body responsible for supervising the activities of organisations in the banking, insurance and superannuation sectors in Australia and ensuring their compliance with relevant legislation. It is accountable to the Australian parliament and works closely with the Australian Treasury, Reserve Bank and the Australian Securities and Investments Commission (ASIC) to promote stability in Australia’s financial system.
Australian Securities and Investments Commission (ASIC): Regulates Australian companies, markets and financial services providers to ensure compliance with the Corporations Act. Any organisation or individual providing financial advice in Australia (including advisers to self-managed super funds) must either hold a current Australian Financial Services licence issued by ASIC or be an authorised representative of a licence holder.
Australian Taxation Office (ATO): The tax revenue collection agency of the Australian government. It is responsible for administering Australia’s tax and superannuation legislation. It can impose civil or criminal penalties on super fund trustees for non-compliance with this legislation.
Best interests: Trustees of super funds are required to act and make decisions in the ‘best interests’ of fund members under the provisions of the Superannuation Industry (Supervision) Act. The Australian Prudential and Regulation Authority (APRA) has the power to impose penalties on trustees who breach this duty, including requiring underperforming funds to merge or exit the industry.
Bring-forward rule: The bring-forward rules allow you to decide to advance your contributions caps from a three-year period and use them over a shorter period – either all at once or as several large contributions.
Carry-forward contributions: This rule applies if you have a total superannuation balance of less than $500,000. The carry-forward rule lets you accumulate any unused portion of your contribution cap for up to five years in order to make additional super contributions above the yearly concessional (taxable) contribution cap (currently $25,000).
Capital gains tax (CGT): This is the income tax payable on any capital gain made from the sale of a capital asset, such as real estate or shares. The capital gain is the difference between the cost base of the asset and the sales proceeds. SMSFs may hold capital assets in either the accumulation or retirement phases. Assets that are in the accumulation phase are subject to CGT when they are sold. Assets in the retirement phase are exempt from CGT when they are sold. See articles about capital gains tax and super.
Centrelink: Centrelink is a part of the federal government’s Department of Human Services. Centrelink provides a range of social, welfare and health payments to seniors, job seekers, students, trainees, families, carers, parents, the disabled, and Indigenous Australians.
CEPAR: The ARC Centre of Excellence in Population Ageing Research (CEPAR) produces world-class research on population ageing.
Collectibles (collectables) and personal use assets: Collectible (collectable) and personal use assets are a potential self-managed super fund (SMSF) asset category that have associated superannuation legislation compliance obligations. Examples of these assets include artwork (such as paintings and sculptures), jewellery and antiques. When owned by an SMSF, these types of assets must not provide a present-day benefit to fund members.
Commissions: Incentive-based reward systems for individuals or organisations selling financial products, including superannuation-related products. Commission-based financial advice is not independent, because it is not impartial or unbiased. There is the potential for a conflict of interest between the adviser and the client receiving commission-based advice.
Commonwealth Seniors Health Card (CSHC): The Commonwealth Seniors Health Card is a concession card that allows people who meet eligibility requirements to access cheaper health care in Australia, including cheaper prescription medicines under the Pharmaceutical Benefits Scheme (PBS).
Commutation: The process of converting your super income stream into a super lump sum payment.
Compassionate grounds: Accessing super early on compassionate grounds is possible under Australian law, provided that a person meets strict eligibility conditions. Normally you can only access your super once you’ve reached your preservation age and met a condition of release (such as retiring from the workforce or turning 65). Your preservation age is between 55 and 60, depending on your date of birth. However, the Australian Taxation Office (ATO) can approve an early release of super on compassionate grounds in order to pay specific types of expenses.
Concessional contributions: Also known as ‘before-tax’ contributions. These are contributions made into your super fund by an employer (such as the 9.5% superannuation guarantee), salary sacrifice payments, or personal contributions. These contributions are taxed at 15% as they enter the fund.
Concessional contributions cap: The cap limits the amount of before-tax contributions you can make to your super in a financial year. Any contributions above this cap will incur additional tax.
Condition of release: A condition you must meet to access your superannuation. The most common conditions of release are retirement after your preservation age has been reached, starting a transition-to retirement-pension after your preservation age has been reached, or reaching 65 years of age.
Consumer Price Index (CPI): The CPI is a statistical measure of the price movement for a basket of goods and services across Australian States and Territories. It is calculated quarterly by the Australian Bureau of Statistics. The CPI influences a range of government benefits, such as the age pension fortnightly income limits and cut-off points.
Contribution splitting: You can make super contributions on behalf of your spouse (married or de facto) under Australian legislation, provided you meet eligibility criteria and your super fund allows it. This is known as contribution splitting. Doing this not only helps to boost your spouse’s retirement savings, it can also help you save tax if your spouse has limited income.
Contributions tax: This is tax paid on your super contributions. Current tax rates on different types of contributions are as follows:
- Concessional (before-tax) contributions: 15% (but taxed at 31.5% if you exceed your concessional contributions cap).
- Non-concessional (after-tax) contributions: Nil (but taxed at 47% if you exceed your non-concessional contributions cap).
- Division 293 taxes: 15% on contributions above the Division 293 threshold.
Corporate funds: A superannuation fund sponsored by either a single employer or a group of related employers for the benefit of company employees.
Death benefit: Upon the death of a member, a superannuation fund trustee can pay a death benefit (or the member’s entire super balance) to the member’s dependants or estate. This will usually be a lump sum payment but can be in the form of a pension in certain circumstances. See articles about superannuation death benefits.
Deemed income: Deeming is a key concept in the Age Pension income test. Deeming rules are used by the Department of Social Services (via Centrelink) for income test calculation purposes. This means that you are assumed to be earning a certain annual rate of return on your investment assets, regardless of the rate of return you are actually earning. Deemed income can be from investments like savings accounts, term deposits, managed investments, listed shares and securities, superannuation pensions, annuities, loans and debentures.
Deeming rates: Deeming rates are used to calculate your deemed (assumed) income from your financial assets as part of the Age Pension income test, rather than what you really earn from your assets.
Default fund: A superannuation fund that an employer’s superannuation guarantee contributions are paid into if an employee does not choose an alternative fund.
Deferred annuity: An annuity where payments commence after a nominated period.
Defined benefit funds: A superannuation fund where contributions are pooled rather than being allocated to particular members. Retirement benefits are determined by a formula based on factors such as an employee’s salary and the duration of their employment.
Defined contribution funds: Also known as an accumulation fund. This is a super fund where the value of the final retirement benefit payable is based on contributions made plus investment returns, less any fees and taxes.
Division 293 tax: This is an additional tax of 15% paid by people whose combined income and concessional super contributions exceed $250,000. The tax payable is levied on the excess over this $250,000 threshold, or on the super contributions, whichever is less.
Divorce and superannuation: Superannuation can be divided between a couple if their marriage or de facto relationship breaks down. Super is treated as a special type of property under family law because it is an asset that is held in trust until you have met a condition of release.
Earnings tax: A 15% tax that is payable on the earnings generated by your super investment during the accumulation phase.
Event-based reporting: Self-managed super funds (SMSFs) are required to report events that impact their members’ transfer balances. Reportable events may include:
- pre-existing income streams,
- new retirement phase and death benefit income streams,
- limited recourse borrowing arrangement payments,
- personal injury contributions,
- commutations of retirement phase income streams.
If no such event occurs, no reporting is needed. There are also some exemptions to the reporting requirement. Pension payments, funds earnings or losses, the death of a member and any details that a member individually reports to the ATO directly are included in these exemptions.
Excess contributions tax: Tax payable on superannuation contributions that are in excess of the concessional or non-concessional contributions caps. See articles about excess contributions.
Exempt current pension income: Includes all income that a super fund earns for assets that are supporting retirement phase income streams. This income is exempt from tax.
Financial Advisers Register: Maintained by the Australian Securities and Investments Commission (ASIC). It is a register of people who have provided advice on investments, superannuation and life insurance since 31 March 2015, including and the type of products they have (or are) licensed to advise on, their work history, qualifications, training, and membership of professional associations.
Financial Information Service: The Financial Information Service is a free service provided by the Department of Human Services to help people make more informed financial decisions.
Financial Planning Association (FPA): The Financial Planning Association of Australia is a professional body for financial planners. They offer a range of services for members, including professional development and education. They also advocate and represent the interests of the financial planning industry as a whole.
Financial Services Guide (FSG): A document containing information and advice about a product or service being provided by a financial organisation. The guide should include information such as product or service fees and charges and the organisation’s complaints resolution process.
First Home Super Saver (FHSS) Scheme: The FHSS Scheme allows first home buyers to save for a deposit within the tax-friendly super environment. Eligible participants can make concessional (before-tax) contributions of up to $15,000 per year (and up to $30,000 in total) to later withdraw and use as a deposit on buying their first residential home. Concessional contributions are taxed at 15% within super funds, which is lower than Australia’s lowest marginal tax rate.
Franked dividends (and franking credits): Franked dividends are dividends or profits paid to shareholders by a corporation that has paid company tax in Australia on part or all of the profit being distributed as a dividend. To avoid the income or profit stream being taxed twice, the shareholder receives a franking credit for tax already paid by the corporation. A shareholder who receives a franked dividend is able to claim a tax offset for the franking credits, otherwise known as imputation credits, attached to the franked dividend. The franking credit represents the amount of company tax that has been paid. The corporate tax rate is currently 30%, or 27.5% for companies with a turnover of less than $25 million. If a shareholder’s marginal tax rate is less than the company tax rate of 30%, he or she would be eligible to receive a refund of the difference between the franking credit and the shareholder’s tax payable.
Future of Financial Advice (FoFA): The FoFA reforms to the Corporations Act became mandatory on 1 July 2013. They included imposing a ban on conflicted remuneration schemes, as well as introducing requirements for financial advisers to act in the best interests of their clients, to provide them with annual fee disclosure statements, and to renew any ongoing fee arrangements with them every two years.
Gainfully employed: In the superannuation context means doing paid work for at least ten hours per week. Being gainfully employed can affect whether or not a person satisfies the retirement condition of release if they have reached their preservation age. A person under the age of 60 must cease all gainful employment to access their super after they have reached their preservation age. A person aged 60 or over must cease a gainful employment arrangement to access their super, even if they start another one.
Global financial crisis (GFC): The global financial crisis is the term given to a period where the global financial system experienced a severe shock between mid-2007 and early 2009. It was triggered by sub-prime lending in the US housing market. The collapse of many large financial institutions around the world was prevented by government bailouts, and the value of stock markets plummeted. It is regarded as the most significant financial crisis since the Great Depression of the 1930s.
Indexation: Indexation is a term used to describe adjusting payments, thresholds or limits by an index (such as the consumer price index (CPI). For example, the age pension asset limits and cut-off points are adjusted three times per year (in March, July and September) based on the consumer price index (CPI).
Industry funds: Not-for-profit or ‘profit to members’ super funds originally formed to provide access to superannuation for employees working within a particular industry.
In specie contribution: In specie is a Latin term meaning ‘in its present form’. An in specie contribution is a non-cash contribution to a super fund. It might come in the form of property or shares transferred to the super fund.
Intergenerational Report: A federal government report on how changes to Australia’s population size and age distribution will affect government policies, economic growth, workforce trends and public finances over the next forty years. The last Intergeneration Report was produced in 2015 and the next is due in 2020.
Intra-fund advice: Often called “scaled advice” and includes any general super fund advice provided by superannuation trustees to members. According to APRA, examples of intra-fund advice includes:
- the extent of cover provided by the insurance arrangements that apply to the member’s interest in the fund and the types of cover that may be suitable for them
- increasing contributions, and
- changing investment options within a fund.
The cost of this type of advice may be charged to fund members.
Investment income tax (superannuation earnings tax): Your super fund investment earnings (such as interest, dividends and rental income) are generally taxed at 15% when you are in the accumulation phase (i.e. making contributions to your fund), less any allowable tax deductions or credits (e.g. franking credits from Australian shares under the dividend imputation system). In addition, all Australian super funds are liable to pay capital gains tax on any capital gains made on the sale of capital assets (e.g. shares or property). The capital gain is the difference between the selling price of the asset and its cost base. This gain is taxed at 10% if the asset is held for longer than 12 months. Capital gains made on the sale of assets that are held for less than 12 months are taxed at 15%. However, if your super is in the retirement phase, there is no tax on your investment earnings. It’s important to understand that there is a transfer balance cap which limits the amount of your funds that can be transferred from the accumulation phase to the retirement phase.
Lifecycle funds: A super fund product available in the accumulation phase of superannuation that increases the relative weight of defensive assets (such as cash) versus growth assets (such as equities) as the member ages.
Lifetime annuity: An annuity payable over a recipient’s remaining lifetime.
Longevity risk: The risk that a person outlives their savings.
Lost or unclaimed super: Many Australians lose track of their super when they change jobs, addresses or their name. lost super includes any super account that has not had a contribution or rollover payment made for 12 months or more, where the fund is unable to contact the member. Unclaimed super includes any funds that are eligible to be withdrawn, but where the super fund is unable to contact the member.
Low and Middle Income Tax Offset (LMITO): LMITO (sometimes referred to as LAMITO) is an acronym for the Low and Middle Income Tax Offset that the federal government introduced as part of the 2018 Budget. It’s a temporary measure for the four financial years between 1 July 2018 and 30 June 2022. The LAMITO is intended to provide tax relief for eligible low and middle-income earners. See articles about the Low and Middle Income Tax Offset.
Low Income Superannuation Tax Offset (LISTO): A tax offset designed by the Australian Government to ensure that low-income earners generally won’t pay more tax on their super contributions than they do on their take-home pay. Eligible low-income earners receive a LISTO contribution to their super fund of 15% of their total concessional super contributions, capped at $500.
Low Income Tax Offset (LITO): The LITO is available for low-income earners. It is automatically applied by the Australian Taxation Office to people who submit a tax return and who do not exceed the LITO income threshold. The LITO can only be used to reduce tax payable. It cannot be applied against any Medicare Levy payable, nor can it be used to generate a tax refund. Any excess LITO is non-refundable.
Low-rate cap: If you reach your preservation age and withdraw super before turning 60, the low-rate cap is a limit on the taxable component/s of your payment/s that can be taxed at the concessional super tax rate of 15%.
Maximum superannuation contribution base: This is a limit applied by the Australian Government that restricts the superannuation guarantee payable by an employer on behalf of an individual employee. An employer does not have to pay superannuation on employee earnings above this base limit.
Medicare Levy: A 2% levy on a person’s taxable income to help fund free public access to medical and healthcare services in Australia. Higher income earners may be liable for the Medicare Levy Surcharge of an additional 1 to 1.5% (depending on their income level) if they don’t have an appropriate level of private health insurance cover.
Member statement: Your super fund should send you a member statement each year. You may also be able to access a statement through your super fund’s website if you have an online account with them. It should tell you what your latest super balance is, how much you or your employer have contributed over the last year, and how the fund balance grew due to investment returns. Your super fund might also give you projections on what level of retirement income you are currently on target for. The member statement should also detail the fees you paid, the tax paid and what your insurance arrangements are.
MoneySmart: The investor and consumer Web site of the Australian Securities and Investments Commission (ASIC), replacing FIDO. MoneySmart contains calculators that enable you to forecast the effect on your super of making extra contributions, receiving contributions under the Government’s Co-contribution Scheme, paying lower fees or even stopping contributions for awhile.
MySuper: MySuper funds are designed to be simple, low-cost and easy to compare. They also act as a default account for people who don’t choose their own super fund when they start a new job.
Non-arms length income (NALI): Income that does not reflect a commercial arm’s length transaction. An arm’s length transaction is done at commercial market values. Self-managed super funds (SMSFs) can be potentially vulnerable to earning non-arm’s length income if they conduct transactions among fund members or their related parties that don’t reflect current market values. SMSFs can lose their concessional tax treatment if they receive non-arm’s length income.
Non-binding nomination: This allows the trustee of your superannuation fund to decide how your death benefits are distributed according to the law (e.g. pay the benefits directly to your estate).
Non-concessional contributions: Non-concessional contributions are sometimes referred to as ‘after-tax’ or ‘undedicated’ contributions, because tax has already been paid or deducted from the money used to make the contribution. There are two main types of non-concessional (after-tax) contributions:
- Personal contributions you make as a super fund member and don’t claim as a tax deduction in your income tax return. These are often called ‘voluntary’ contributions and can be either a large lump sum or small regular amounts from your wages or salary.
- Spouse contributions are made directly into your spouse’s super account. This can be a tax-effective way for a couple to save for retirement if one partner is only working part-time or has a low income. They can also help to balance the amount you and your spouse have in super and can equalise your retirement income.
Non-concessional contributions cap: The maximum amount you can contribute to your superannuation from your after-tax income. The current cap is $100,000 per financial year.
Non-preserved benefits: There are two types of non-preserved benefits: restricted and unrestricted. Restricted non-preserved benefits include any employment-related contributions you may have made before 1 July 1999, excluding employer contributions. You can’t access these benefits until the employment arrangement they relate to has been terminated. Unrestricted non-preserved benefits include any benefits that may be paid on demand by your super fund because you have already satisfied a condition of release.
Pension Bonus Scheme: The Pension Bonus Scheme is a tax-free lump sum payment available to people who meet its eligibility requirements. The Scheme has not accepted any new registrations since 1 July 2014. It was designed to reward people for delaying their receipt of the age pension by continuing to work.
Pensioner and Beneficiary Living Cost Index: Compiled by the Australian Bureau of Statistics (ABS) every quarter to reflect the cost of living for age pensioners and other government benefit recipients. It is used to help inform government decision-making on Age Pension and other benefit rates.
Permanent disability or permanent incapacity: A person can access their super benefits early due to permanent disability or incapacity under Australian law, provided you meet the eligibility conditions. Two medical practitioners must certify that the person has physical or mental ill-health issues that are likely to stop them from ever working again in the job they’re qualified to do. Those qualifications could include their prior experience, training or education.
Pharmaceutical Benefits Scheme: The Pharmaceutical Benefits Scheme is a government-subsidised program to provide cheaper prescription medicines for Australians. Most of the medicines in the PBS are dispensed by pharmacists, except those that are dangerous (and which require medical supervision to administer).
Preservation: A term used to describe the retirement benefit locked away for a super fund member.
Preservation age: The minimum age that you can withdraw your super benefits under Australian legislation, once you have also met a condition of release. See articles about Preservation age.
Preserved benefits: Preserved benefits refers to super money that must be “preserved” (not be made available) until a condition of release is met and subject to any restrictions imposed as part of the condition of release.
Productivity Commission inquiry into superannuation: This inquiry produced a report that made numerous recommendations based on an extensive two-year analysis of Australia’s superannuation system. The report was publicly released in January 2019.
Profession of Independent Financial Advisers (PIFA): The Profession of Independent Financial Advisers (PIFA) (formerly known as the Independent Financial Advisers Association of Australia (IFAAA)) are the gold standard of independence in financial advice, with all members meeting the following criteria; No asset-based fees; No commissions or incentive payments from product manufacturers; No ownership links or affiliations with product manufacturers.
Proportioning rule: Superannuation benefits paid to persons must be made up of the same proportion of tax free and taxable components as the total value of their superannuation interest. For example, if the total value of the benefit comprises a 30 per cent taxable component and a 70 per cent tax free component, any benefit paid to the person must also comprise a 30 per cent taxable component and 70 per cent tax free component.
Public sector funds: These are super funds for public sector employees. Public sector employees work in local government, the Commonwealth and State public services, public healthcare, emergency services, and the defence forces.
Reportable super contributions: Any personal deductible contributions you make to super, salary sacrifice arrangements, or employer super contributions made on your behalf that exceed the superannuation guarantee.
Restricted benefits: Assets and money within a superannuation fund that you cannot access until you have met a condition of release.
Restricted non-preserved benefits: Restricted non-preserved benefits include any employment-related contributions a person may have made before 1 July 1999, excluding employer contributions. People with restricted non-preserved benefits can’t access them until the employment arrangement they relate to has been terminated.
Retail fund: A superannuation fund run by financial institution on a commercial ‘for profit’ basis.
Retirement phase (previously known as pension phase): The period when you can receive a tax-free super income stream, pension or lump sum.
Reversionary income stream: An income stream that continues to be paid to your beneficiaries following your death.
Royal Commission into Banking, Superannuation and Financial Services: This Royal Commission was established in December 2017 and its final report was released in February 2019. This report made 9 recommendations for superannuation, and 10 recommendations for financial advice.
Salary sacrifice: An agreement made between you and your employer that allows you to pay for goods and services from your pre-tax salary. Super contributions can be salary sacrificed. Salary sacrificing reduces your taxable income and can be a tax-effective way of saving for your retirement. See articles about salary sacrificing.
Same-sex couple: A same-sex couple is a relationship between two people of the same sex. In most aspects of superannuation both members of a same-sex couple have the same rights as both members of a couple who are from the opposite sex.
Self-managed superannuation fund (SMSF): A private superannuation fund managed by members who must either be trustees or directors of the corporate trustee of the fund. See articles about SMSFs.
Seniors and Pensioners Tax Offset (SAPTO): A tax offset available to you if you’re eligible to receive the Age Pension. The tax offset percentage varies depending on your rebate income and marital status. In some circumstances, the SAPTO may reduce your tax liability to zero.
Sequencing risk: The risk of experiencing poor investment returns just prior to drawing on your retirement funds.
Severe financial hardship: Accessing super early due to severe financial hardship is possible under Australian law, provided that a person meets strict eligibility conditions. Those conditions are having received specific types of government welfare payments from the Department of Human Services for at least 26 consecutive weeks, as well as being unable to meet their reasonable and immediate family living expenses.
SIS Act: The abbreviation for the Superannuation Industry (Supervision) Act. The SIS Act makes provisions for the management of Australia’s superannuation system.
SMSF Association: The SMSF Association is an independent professional body that represents the interests of Australia’s self-managed super fund (SMSF) sector.
SMSF audit: Annual audits are mandatory for self-managed super funds (SMSFs) and must be conducted by an independent auditor who is registered with the Australian Securities and Investments Commission (ASIC). An SMSF auditor is responsible for analysing a fund’s financial statements and assessing its compliance with superannuation law. They must report any non-compliance issues to all fund trustees and the ATO.
SMSF trustee: All members of a self-managed super fund (SMSF) must also be a trustee of the fund (or a director of the company if the fund is set up with a corporate trustee structure). SMSF trustees are responsible for ensuring the fund’s compliance with superannuation legislation. The Australian Taxation Office (ATO) can impose a range of penalties on SMSF trustees for non-compliance.
SMSF trustee declaration: A self-managed super fund (SMSF) trustee declaration is an Australian Taxation Office (ATO) document that summarises the duties and obligations of an SMSF trustee or director. SMSF trustees/directors are responsible for their fund’s compliance with superannuation legislation. Each trustee/director of an SMSF must sign a trustee declaration within 21 days of their appointment to indicate that they understand all of their legal compliance obligations.
Sole purpose test: A legal requirement that requires super funds to be maintained for the sole purpose of providing retirement benefits to their members (or to their dependants if any of their fund members die before retiring).
Spouse: For the purposes of super and tax law, and generally with regards to receiving government or death benefits, a spouse of someone can be another person who is; married to that person; or in a registered relationship with that person (recognised under certain states); or in a de facto relationship with that person. These relationships can be same-sex relationships.
Super Fund Lookup (SFLU): An online service provided by the Australian Taxation Office (ATO) that provides public information on super funds that have an Australian Business Number (ABN), including whether the fund is currently compliant with super legislation.
Superannuation benefits payments tax: If you’re aged over 60 when you access your super, the benefits you withdraw will usually be tax-free. If you access your super prior to turning 60, the amount of tax you’ll pay will depend upon:
- whether you have reached your preservation age or not (for example you might be accessing your super early due to satisfying an ATO-approved condition of early release),
- whether you choose to receive your payment as an income stream or lump sum, and
- the components of your payment (i.e. whether it contains a tax-free component, a taxable component, or both).
If you withdraw a super lump sum before you reach your preservation age (if you meet a condition of release), it will either be taxed at 22% (including the Medicare levy) or your marginal tax rate, whichever percentage is lower. If you choose to withdraw a lump sum after reaching your preservation age and prior to turning 60, you can withdraw the taxable component of your super up to the low-rate cap (currently $205,000) tax-free. Any amounts that you withdraw above this cap will be taxed either at 22% (including the Medicare levy) or at your marginal tax rate, whichever percentage is lower.
When you die your super balance will be paid to your nominated beneficiary. The tax payable depends upon:
- whether they are a dependant of yours or not,
- whether the death benefit is paid as a lump sum or an income stream, and
- whether the benefit contains a taxable component or not.
Superannuation co-contributions: An initiative where the Australian Government matches the (after-tax) superannuation contributions of low to middle-income earners. The Government’s co-contribution is currently capped at $500 per financial year. The co-contribution amount is dependent on your personal super contributions and income thresholds.
Superannuation contributions: Cash or in specie contributions made to your superannuation fund. This includes both personal contributions and contributions made by your employer. See articles about making superannuation contributions.
Superannuation Guarantee (SG): This is the official term for compulsory super contributions made by employers on behalf of their employees. The superannuation guarantee amount is currently 9.5% of an employee’s ordinary time wages or salary. This is scheduled to increase to 10% from July 2021 and progressively increase to 12% by July 2026. See articles about the superannuation guarantee.
Superannuation ratings agencies: Companies such as Chant West, Rainmaker and SuperRatings research super funds, including aspects such as investment returns, fees, insurance options and member services.
SuperStream: The system that employers must use to make their compulsory superannuation guarantee payments for their employees. The system enables superannuation funds and data to be transferred electronically between employers, super funds, the Australian Taxation Office (ATO) and other service providers.
Taxable component: The component of your superannuation benefit that would be subject to tax if you accessed it before turning 60, or that includes an untaxed benefit from a public sector super fund, or certain superannuation death benefits.
Taxable income: The income that an individual or a super fund is required to pay tax on. It is the income left over after all tax-deductible expenses have been claimed.
Taxed source: The term used to describe the tax treatment of a super fund. A benefit from a taxed source is a super benefit that’s paid from a fund that deducts ‘contributions’ tax from concessional (before-tax) contributions and which is liable for earnings tax on fund earnings.
Tax-deductible super contributions: Employers can claim a tax deduction for superannuation contributions made on behalf of employees. You can claim a tax deduction for your personal super contributions as an employee or a self-employed person, up to the annual concessional contributions cap.
Tax file number (TFN): Individual tax file numbers are issued to Australians by the Australian Taxation Office. This number is each individual’s personal reference number in the tax and superannuation systems and remains the same throughout their life. If you don’t have a tax file number (or fail to provide one when requested), you can be liable to pay more tax and you’ll be ineligible to apply for government benefits.
Tax-free component: The tax-free part of your super benefit is made up of a contributions segment (comprised of non-concessional contributions made after 1 July 2007), and a crystallised segment (a fixed dollar figure comprised of certain pre-July 2007 benefits).
Tax offset: A tax offset can be used to reduce or eliminate your tax liability. Examples of tax offsets are the Seniors and Pensioners’ Tax Offset (SAPTO) and the Low and Middle Income Tax Offset (LMITO). It’s important to understand that tax offsets can’t generate you a tax refund. So you can potentially have a tax offset that’s higher than your tax obligation. In that situation, the excess offset can’t be used.
Tax return: Tax returns are documents that each Australian earning taxable income is required to lodge each year with the Australian Taxation Office (ATO). Super funds are also required to lodge annual returns, including self-managed super funds.
Temporary resident: A temporary resident in Australia is a foreign citizen who is granted the right to stay in the country for a specific period of time outlined in a visa or residency permit. Temporary residents are eligible to access any super they have earned while working in Australia when they leave the country via a Departing Australia Superannuation Payment (DASP).
Terminal illness: Australian super law allows a person to access all of their super early if they are diagnosed with a terminal medical condition. Two medical practitioners must certify that the person has an illness or injury that will result in their death within 24 months of the date of the certificate.
Total superannuation balance: Your total superannuation balance is the combined balance of your accumulation and retirement phase funds.
Transfer balance cap: The transfer balance cap is one of the most significant recent changes to superannuation, becoming effective on 1 July 2017, although the ATO estimates it affected only 1% of Australians. Anybody that retires has the choice of accessing their superannuation either as a lump sum, an income stream, or a combination of both. If they access any of their superannuation as an income stream, the income earned on the capital supporting that income stream is taxed very concessionally – at 0%. The transfer balance cap currently is a $1.6 million cap on the amount that can be used to commence a pension in retirement. To keep up with inflation, the $1.6 million will be indexed periodically in $100,000 increments.
Transition-to-retirement (TTR) pension: An account-based pension that can be started when you reach your preservation age. It allows you to access your super without having to retire from work.
Trust deed: A legal document that sets out the terms of operation for a self-managed super fund (SMSF). It includes key information such as the sole purpose objective of the trust, the names of members/trustees, and rules that outline how the trustees will implement the fund’s investment strategy and manage the fund.
Trustee (or trustee board or trustee directors): A superannuation trustee is a person responsible for administering a super fund and ensuring its legal compliance.
Unrestricted benefit: Money within your superannuation fund that can be accessed at any time because you have already met a condition of release.
Unrestricted non-preserved benefits: These include any benefits that may be paid to a member on demand by their super fund because they have satisfied a condition of release. Any person who meets a condition of release and leaves assets in their super fund has unrestricted non-preserved benefits.
Untaxed plan cap amount: This cap limits the concessional tax treatment that can be applied to lump sum member benefits that have not been subject to 15% contributions tax within a super fund.
Work test: If you’re aged between 65 and 74, you must satisfy the work test to be eligible to make contributions to your super fund. This means you must be working for a minimum of 40 hours in any 30 consecutive day period.
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