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Super Facts and Terms

Please note these terms and rules have been tailored to the Self Managed Super Fund arena, while some of the terms may relate to the broader superannuation arena it is the users responsibility to check and ascertain the accuracy and relevance to their circumstances. Nothing here should be taken as advice, you should seek professional advice based on your own circumstances, Super Plus is not liable for your reliance on the information provided or any error contained in the information.

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Account Based Pension (ABP)
This is a pension paid from your non-preserved benefits account balance, it will continue until the balance is reduced to zero (through paying out all the pension payments, being cashed out as a lump sum or commuted back to the accumulation phase). It is most commonly designed to provide you with an income stream using your retirement benefit when you retire, but may also be paid from a total and permanent disability (TPD) benefit, terminal illness benefit or a death benefit.

There is no maximum pension payment amount you must receive from an ABP and you may also withdraw additional lump sum payments (tax may apply). Your minimum pension payment amount is worked out each year. It is calculated by multiplying your account balance as at 1 July (or the commencement of your pension) by a percentage factor depending on your age, as follows:

When you commence your ABP, you may nominate a reversionary beneficiary to receive your pension when you die. Alternatively, you may complete a pension death nomination at any time, nominating which of your dependants or legal personal representative you would like to receive your remaining account balance on your death as a death benefit.

If you are age 60 or over, no tax is payable on your pension payment amounts nor is there any requirement to record the pension payments in your personal income tax return, if you do one, therefore Super Plus does not produce PAYG statements on pensions/withdrawals (minutes are still required) for members over 60 on SMSFs we administer. Payments to someone aged under 60 may be taxable, with a tax rebate applicable.

Actuarial Certificate
Self Managed Superannuation Funds (SMSFs) that pay pensions may be required to obtain Actuarial Certificates. If a SMSF has solely account based pensions for all members then there is no need for an actuarial certificate.

An actuarial certificate is required if the SMSF has a mix of accumulation accounts and account based pensions, or for any SMSF that contains a complying pension.

The cerificate will include a valuation of pension assets for either of the following reasons:
Tax exemption percentage of the SMSF: this determines the portion of the fund's income that qualifies for exemption from tax;
Capital Adequacy: determines whether there is a "high degree of probability that the fund will be able to pay the pension as required under the fund's governing rules”.

Allocated Pension
This is the term previously used to refer to a common pension being paid from a super fund. This term may still be used for a pension setup prior to 20th Sept 2007 and still making payments calculated under the old rules. Many of these pensions have since been converted to Account Based Pensions as these pensions allowed for a lower minimum payment and no maximum.

ATO Levy
This is a supervisor levy of $150 paid by every SMSF to the ATO. It now forms part of the SMSF Income & Regulatory Return (tax return) of the fund.

Audit
An audit of the fund financials and compliance with the SIS Act is required every year. The audit is conducted under guidelines set out by the ATO and various accounting bodies that the auditor may be a member of. The audit is best conducted by someone independent of the trustees or the people preparing the fund financials. Super Plus does not engage in audit practice and uses an independent auditor for the audit of its SMSFs.

Audit Breach
An audit breach occurs when the auditor identifies a breach of the SIS rules by the SMSF. The auditor has a duty to report breaches to the ATO in a prescribed format. The ATO has a range of actions it may take, ranging from a warning through to prosecution of the trustees. The trustees should ensure they always comply with the SIS requirements and take action to remedy any breaches immediately.

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BAS
A Business Activity Statement is the statement from the ATO which is completed and lodged usually on a quarterly basis. It encompasses return information for GST, PAYG income tax instalment and PAYG Withheld.

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CGT contribution
CGT contributions - if you own an eligible small business, you may be eligible for a Capital Gains Tax exemption on the sale of your business or its assets. You may be able to use all or part of the proceeds of the sale to contribute to super as a CGT contribution. You must provide a CGT cap election form (available from www.ato.gov.au) within 30 days of making a CGT contribution, otherwise the amount in excess of the non-concessional cap will be refunded to you.

CGT contributions:

1. are not subject to contributions tax, or TFN tax
2. form part of the tax-free component of your super benefit
3. count towards the non-concessional contribution cap to the extent they are greater than your lifetime CGT Cap. Amounts below the CGT Cap do not count towards any contribution cap.
4. The CGT Cap is $1.045 million (2008/09, indexed annually) for your lifetime.

Concessional Contributions (CC)
Concessional contributions are generally contributions made by your employer or by you for which you can claim a valid tax deduction:

Employer contributions: (including 9% SG contribution) - are contributions your employer makes to your super fund. Employers in Australia are required by legislation to provide a minimum level of superannuation support for most employees. The rate is currently 9% of an employee’s earnings and called 9% SG contributions. Your employer may also be required to contribute for you under an industrial award or agreement. These contributions are also referred to as ‘compulsory contributions’ or ‘mandated employer contributions’. Employers may also make ‘additional’ or ‘voluntary’ contributions if that forms part of your employment contract.

Salary sacrifice contributions: are contributions you have agreed with your employer through an effective salary sacrifice agreement to be paid directly to your super account balance instead of paid to you as salary or wages.

Personal deductible contributions: are contributions you pay to your super fund that you can claim a tax deduction for. You can only make these contributions if less than 10% of your assessable income and reportable fringe benefits is attributable to an employment agreement. For all these types of contribution a Section 290-170 notice must be completed . If age 75 the contribution must be paid before 28 days after the end of the month in which you turned age 75.

Concessional cap
Contributions in excess of your concessional cap will be taxed at an additional rate of 31.5% on the excess contributions, on top of contributions tax.

Concessional cap for the 2008/09 year is:
Under age 50 - $50,000 per annum (indexed)
Age 50 and over (transitional cap) - $100,000 per annum until 30 June 2012

Contributions Matrix
The table below sets out the basic details for the majority of super contributions.

	< 65	Age 65-90	Age 70-74	Age 75+
Non Concessional Contributions (Contributions after tax)
Personal Contribution
	TFN $150k each year or 3 years using brought forward years $450k limit	TFN $150k limit Work test	TFN $150k limit Work test	28 Day rule
Spouse Contribution
	TFN $450k limit	TFN $150k limit Work test
Child Contribution
	(only to age 18) TFN $450k limit
Concessional Contributions (contributions before tax)
Employer Contribution 9% SG Contribution
	TFN Tax	TFN Tax
Employer Contribution compulsory or mandated
	TFN Tax	TFN Tax	TFN Tax	TFN Tax
Employer Contribution additional voluntary or salary sacrifice contribution
	TFN Tax	TFN Tax Work Test	TFN Tax Work Test	28 Day Rule
Personal Deductible Contributions
	TFN	TFN Work Test	TFN Work Test	28 Day Rule

Please note: Although the above table may indicate that you are eligible to contribute to super, contributions tax, TFN tax, excess contributions tax may apply to your super contribution.

Contributions tax
This tax of 15% is deducted from your account balance on entry, most commonly on your concessional contributions.
If you make an employer directed termination payment (DTP), contributions tax will be deducted from the taxable component. Contributions tax also applies to the untaxed element of the taxable component of an untaxed rollover.
Other taxes that may apply to your super contributions include TFN tax and excess contribution tax.

TFN
If you make a super contribution (other than an employer contribution), you must provide your TFN within 30 days of making the contribution, otherwise the contribution must be refunded to you less adjustments for taxes, fees, costs and insurance premiums, and reduced or increased for market movements.

TFN tax
It is not compulsory to provide us your TFN, however if you do not, the super fund may be required to deduct additional TFN tax of 31.5% from your concessional contributions, and the taxable component or an untaxed rollover or employer directed termination payment (DTP). This is in addition to the 15% contributions tax.

Work test
If you are aged between 65 and 74 you must meet the work test to be allowed to make some super contributions. This work test requires you to have worked at least 40 hours within 30 consecutive days in a financial year prior to making the contribution.
Generally, a super fund can not accept super contributions when you reach age 75.

28 day rule
You or your employer may contribute if you meet the work test and the contribution is received by the fund within 28 days after the end of the month in which you turn 75.

Corporate Trustee
This is a company that acts as the trustee of the SMSF. It may be a company that operates a trading business, however it is generally acknowledged that a company acting solely as a corporate trustee, known as a special purpose company is the preferred option when using a company. This is because using a trading company may result in you losing control over your SMSF if the company entered some form of administration due to trading difficulties. When a SMSF has a company as the trustee all directors must be members of the SMSF, there can be no directors that are not members of the SMSF. If using a special purpose company (ie SMSF trustee company) the ASIC annual fee is reduced to only $40.

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Death benefit
This is a super benefit equal to a members account balance, which is paid to your dependants or legal personal representative in the event of a member's death.
If you have not yet commenced a pension, you may nominate a dependant or legal personal representative to receive your death benefit using one of the death nomination types.

When a pension is commenced you may nominate a reversionary beneficiary to receive your pension when you die. Alternatively you may complete a death nomination at any time nominating which of your dependants or legal personal representative you would like to receive your remaining account balance when you die.

If your death benefit is paid as a lump sum to your eligible dependants (eg: wife, financial dependents), no tax is payable on the payment.
If the death benefit is paid to non-dependants (eg brothers & sisters) then the benefit may be taxable.

Death Nomination Types
There are a number of options concerning death nominations, listed below are the basics which is not designed to be a definitive description. It is vital that any nomination you make is valid and appropriate to the outcome you are trying to achieve. You should carefully consider your decisions and seek professional guidance from a financial adviser, lawyer, solicitor or other professional as appropriate to your circumstances.

Valid Nominations
It is extremely important that the nomination is valid, if the people nominated are other than dependents under the SIS legislation then your nomination will be invalid and your death benefit will be paid to your legal personal representative, and not as you instructed in your nomination.

Dependents
Under SIS law, your death benefit may only be paid to your dependants or your legal personal representative.
Your dependants are your current spouse (including de facto), your child (including step, adopted or ex-nuptial), any person financially dependent on you, or a person with whom you have an interdependency relationship. Therefore brothers and sisters are not normally classified as dependents, unless financially dependent, recording them may invalidate your nomination.

For tax purposes, the same people are your dependants except that a child is deemed only to be your dependant if they are under age 18. This means that if you nominate your child age 18 or over to receive your death benefit, benefit tax may be withheld from the payment. See benefits tax for more information on the tax withheld from death benefits.

A pension may only be paid after you die to an eligible pension dependant. Otherwise your death benefit will be paid as a lump sum

Legal Personal Representative
By law, your death benefit can only be paid to your legal personal representative or directly to your dependants. Your legal personal representative is the executor, administrator or trustee of your estate appointed when you die.

If you have not yet commenced a pension, see death nominations. Also see reversionary beneficiary if you have started a pension.

Death Nomination
If you have not yet commenced a pension, the death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. This nomination is not binding on the trustee of the SMSF, this is only guidance to the trustee as to what you would like happen. The trustee may decide to pay the benefit differently to your nomination, which may be beneficial depending on the circumstances.

Binding Death Nomination
If you have not yet commenced a pension, the binding death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. A binding nomination, if valid, binds the trustee(s) of the SMSF to pay the death benefits as instructed in the Binding Death Nomination. This type of nomination will expire after 3 years and therefore a new Binding Death Nomination needs to be done at least every 3 years. A new nomination can be done at any time during the 3 years. Your trust deed should be checked for requirements for this form of nomination.

Binding Non Lapsing Death Nomination
Your SMSF trust deed must specifically set out the rules for this type of nomination.
If you have not yet commenced a pension, the binding non-lapsing death nomination allows you to nominate which of your dependants or your legal personal representative you would like to receive your death benefit. A binding nomination, if valid, binds the trustee(s) of the SMSF to pay the death benefits as instructed in the Binding Death Nomination. This type of nomination does not lapse (it is therefore prudent to periodically review). A new nomination can be done at any time.

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Government co-contribution
Government co-contribution - if you earn 10% or more of your income as an employee or from self employment and earn less than $60,342 pa in the 2008/09 year the Government will contribute up to $1.50 for every $1.00 non-concessional contribution you pay to your account balance before the year in which you turn age 71. The maximum Government co-contribution is $1,500 per annum. The co-contribution reduces by 5 cents for every dollar you earn over $30,342 in the 2008/09 year.

Government co-contributions:

1. are not subject to contributions tax, or TFN tax
2. do not count towards a contribution cap
3. form part of the tax-free component of your super benefit.

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IAS
This is an Instalment Activity Statement, if a fund is not registered for GST this notice is completed usually on a quarterly basis. It encompasses return information for PAYG income tax instalment and PAYG Withheld.

Instalment Warrant
This is a type of investment or structure in which an asset is purchased, with some of the purchase money coming from borrowings. The borrowings will be internal to the structure and will not have recourse to the investor, in this case the SMSF. There is also the right of the investor to acquire the underlying asset in the future, with the borrowed funds part being repaid at that time.

Investment Strategy
It is a strategy which outlines the types of investments of the Self Managed Super Fund which are selected to achieve a desired outcome and a minimum level of performance.

It is a plan for making, holding and realising the Fund’s assets consistent with the Investment Objective of the Fund.

If you don't have a valid "investment strategy" then the ATO may deem your SMSF as non-complying, the auditor will check on the annual SMSF audit that you have an investment strategy. If the ATO makes enquiries as to the conduct of your fund the first item usually requested is a copy of your investment strategy.

Under the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) the Trustee of the SMSF is solely responsible and directly accountable for the management of the members’ benefits.

The investment strategy is not onerous, but does require ongoing review. Examples of times where it is wise to review and if necessary update the investment strategy include:

(i)Identification and intent to invest in a specific investment opportunity that does not fit with the current strategy;
(ii)Change in risk tolerance or financial needs or expectations of the member(s) over time;
(iii)Adding a new member to the fund;
(iv)Commencement of a pension for a member (likely to require higher cash liquidity);
(v)Death or change in health of a member;
(vi)Marriage breakdown

The investment strategy should have regard to the complete circumstances of the SMSF, including:

(i) the risk involved in making, holding and realising the SMSF's investments, and the likely return from these investments, having regard to the SMSF’s objectives and its expected cash flow requirements;

(ii) the composition of the SMSF's investments as a whole, including the extent to which the investments are diverse or involve the entity in being exposed to risks from insufficient diversification. This may also include asset allocation ranges for each of the different asset classes, eg Aust Equities 20% to 65% Bench Mark 40%

(iii) the liquidity of the entity's investments having regard to its expected cash flow requirements, for example: payment of tax, lump sum benefits if a member leaves the SMSF, or regular pension payments;

(iv) the ability of the SMSF to discharge its existing and prospective liabilities, such as being able to pay members’ retirement benefits.

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Joint Venture
This is when the SMSF and someone else (member personally, unrelated person or entity) partner together to make an investment. The Joint Venture agreement specifies the way in which the venture is to proceed, who puts in what money, how expenses, income, profit and loss are to be apportioned between the venture parties. The terms must be on a commercial arms length basis. An example of a joint venture would be the SMSF contributing 60% and a member personally contributing 40% towards the purchase of a business property.

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Lodgement Date
The lodgement date of the funds Income & Regulatory Return for a SMSF depends on it’s status. The lodgement due date is always in the year after 30th June the current year. For the 1st year of operation the lodgement date is 28th Feb, for each year after the first year of operation the due date is 15th May the following year, eg year end 30th June 2009 then the due date is 15th May 2010. The exception to this is for an existing fund that has previously failed to lodge on time, for this there may be a late penalty and the lodgement date moves to 31st Oct, that is only 3 months after financial year end. The lodgement date will revert to the normal date once all lodgement returns are brought back on track.

Lump sum
A super benefit paid to you as a single cash payment rather than paid to you in the form of a pension.

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Member
A member is someone that has a benefit in the SMSF, such as an accumulation account or a pension account. All members must be trustees, except in the case of a single member fund in which case the second trustee is not a member. A member may be in a SMSF without an account balance as contributions may not have been paid in or rollovers received. Each member must complete a member application to join the fund.

Minute
This is a record of the trustees meetings and decisions. These are vital for recording what has occurred in the SMSF and documenting the trustees decisions. Without minutes it may be hard to show someone the reasons particular decisions were taken. Such need would likely arise if an ATO audit was to occur or there was a dispute over the operation of the SMSF.

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Non Concessional Contributions (NCC)
Non-concessional contributions: are generally contributions made by you from your after-tax income, they may also be made by your spouse or on behalf of your child:

Personal contributions: a contribution you make to your account balance from your after-tax money for which you do not claim a tax deduction.

Spouse contributions: a contribution by your spouse from their after-tax money to your account balance for which your spouse may be entitled to claim a spouse contribution offset.

Child contributions: a contribution paid from after-tax money on behalf of a child up to age 18 (other than a contribution by the child’s employer).

Non-concessional contributions:

1. are not subject to contributions tax or TFN tax
2. are refunded to the contributor, less taxes, fees, costs and insurance premiums, and reduced or increased for market movements, if you do not provide your TFN within 30 days,
3. count towards your non-concessional cap,

Non-Concessional cap in the year 2008/09 is:
Under age 65 (at time of the contribution or beginning of the 3 year period) - $150,000 per annum, or $450,000 over a 3 year period, may be made all in one year.
Age over 65 (subject to work test) - $150,000 per annum

Non-preserved
Your unrestricted non-preserved amount in your account balance can be cashed out at any time as a lump sum or to commence a pension.
Your restricted non-preserved amount in your account balance cannot be cashed out until you cease employment with an employer who made contributions to your account balance. Only contributions made to your account balance before 1 July 1999 can give rise to restricted non-preserved amounts.

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PAYG notice
Pay As You Go is the term referred to for paying an estimated amount of tax in advance, before your funds tax return has been completed and lodged. It may be completed on a quarterly basis or if the fund is not registered for GST then the PAYG reporting may be on an annual basis.

Preserved
This is the amount of your account balance that is preserved and cannot be withdrawn as either a lump sum or a pension until you meet a condition of release such as retirement, a total and permanent disablement benefit, a terminal illness benefit or a death benefit. You may also access your preserved amount when you are eligible for a pre-retirement pension.
In exceptional circumstances, you may also be paid some or all of your preserved amount if you are entitled to a financial hardship benefit, a compassionate grounds benefit.

Preservation Age
This is the age at which benefits can be taken from a superannuation fund on satisfying a condition of release such as retirement. Benefits already Non-preserved are not subject to these preservation ages.

A persons preservation age depends on their date of birth, as set out in the following table:

Product Disclosure Statement (PDS)
A legal document that providers of financial products, including super funds must issue to new clients or existing super fund members describing the products key features and benefits. The PDS must include disclosure of product rules, conditions and fees.

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Reserve Accounts
This is an account inside the SMSF that money may be applied to before a decision is made on the allocation to a member account. The most common account is an Investment Reserve to which profits in good years can be allocated. The reserves are then applied to members when investment returns are low or negative, this strategy thus smooths returns to the members. A Reserve may also be needed if the SMSF wishes to make provision for any possible Anti-Detriment payments on the death of a member, this is because money may not be taken from other members to make the payment and therefore there must be non member money available to make any such payment. Professional advice should be obtained when operating a reserve.

Retired
For the purposes of paying a retirement benefit, you are retired when you: reach your preservation age and have ceased employment and do not intend to ever again work more than 10 hours per week; or you have ceased employment on or after age 60 (regardless of future work intentions); or you turn 65 (regardless of current employment status and future work intentions)

Retirement Benefit
This term best describes a benefit paid to you when you retire, meaning you have reached your preservation age and have ceased employment and do not intend to ever again work more than 10 hours per week; or you have ceased employment on or after age 60 (regardless of future work intentions); or you turn 65 (regardless of current employment status and future work intentions). A retirement benefit can be paid to you as a pension, a lump sum, or a combination of both.

Reversionary Beneficiary
When you commence a pension, you can nominate a dependant to be your reversionary
beneficiary. This means in the event of your death, that person will receive your pension, ie the pension reverts to the person you nominated.
If the person you nominate is not an eligible pension recipient at the time of your
death, then the benefit remaining in your member account must be paid to that person as a lump sum.

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Section 290-170 Notice
If you make a Concessional Contribution and intend to claim a tax deduction, you must send a notice (from 2008 known as a 290-170 notice) to the SMSF trustee notifying them of your intention to claim a deduction. For this to be valid you will need to also receive a confirmation from the trustee that they have received your notice and this notice must be received before the deduction is claimed on your personal tax return.

SMSF
Means Self Managed Superannuation Fund, sometimes also referred to as DIY funds, although Do It Yourself is a little mis-leading when it comes to SMSFs as the running of these types of funds is hardly do it yourself, as professional assistance such as an SMSF administration service provided by a company such as Super Plus are required for most trustees.

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Tax-free component
No tax is payable on the tax-free component of your super benefit.
If you have not yet commenced a pension, your tax-free component is generally equal to your after-tax non-concessional contributions (formerly known as undeducted contributions) such as your personal contributions, spouse contributions, child contributions and Government co-contributions. Additional amounts such as the Pre-83 component (term used before crystallisation on 01/07/07), CGT contribution or personal injury payment are also included in the tax-free component of your account balance.

On commencement of a pension, the proportion of your taxable component and tax-free component is calculated. Every subsequent pension payment amount or additional lump sum has this proportion of taxable component and tax-free component. Any change in the value of the investment (gains/losses,/income expense) is proportioned across both the taxable and tax free components.

Taxable component
If you are age 60 or over no tax is payable on the taxable component of your super benefit.
If you have not yet commenced a pension, the taxable component is equal to your super benefit less your tax-free component. Generally, this is your pre-tax concessional contributions such as employer contributions, salary sacrifice contributions, personal deductible contributions, the taxable component of rollovers.

It also includes the net investment earnings included in your account balance, this means that growth in the fund value (before commencing a pension) forms part of the Taxable Component.

On commencement of a pension, the proportion of your taxable component and tax-free component is calculated. Every subsequent pension payment amount or additional lump sum has this proportion of taxable component and tax-free component. Any change in the value of the investment (gains/losses,/income expense) is proportioned across both the taxable and tax free components.

Transition to Retirement Income Stream (TRIS)
Is a pension designed to supplement your income in the later years of your working life before you retire. You can only take this type of pension on reaching your preservation age.

Similar to an Account Based Pension a minimum pension payment amount must be taken each year. However in addition, you are restricted to taking a maximum pension payment amount each year of 10% of your account balance as at 1 July (or the commencement of your pension). You can not take an additional lump sum other than if you are eligible for a non-preserved cash benefit from your account balance.

Your TRIS will convert to the rules of an ABP (with no maximum pension payment amount or restrictions on taking a lump sum) on the earlier of the date that you meeting the eligibility criteria for a condition of release, such as retirement, reaching age 65, a total and permanent disability (TPD) benefit, a terminal illness benefit, or you die and a death benefit becomes payable.

When you commence your TRIS you may nominate a reversionary beneficiary to receive your pension when your die. Alternatively you may complete a pension death nomination form at any time nominating which of your dependants or legal personal representative you would like to receive your remaining account balance on your death.

If you are age 60 or over, no tax is payable on your pension. If you are under 60 personal income tax may be payable on the pension you draw.

Trust deed
The document that sets out the governing rules for how a SMSF is operated. From time to time as legislation changes the trust deed may need to be updated. The rules of the trust deed cannot override the SIS and in event of a conflict the SIS Act will prevail.

Trustee
A trustee is a person or company responsible for the operation of the super fund and ensuring the SMSF is managed according to the trust deed and superannuation law. There is a maximum of 4 Individual Trustees or 1 company trustee with maximum of 4 directors. Each trustee/director must consent in writing to be a trustee and the ATO also requires all trustees after 1st July 2007 to sign a ‘Trustee Declaration’.

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Undeducted Contributions
The term previously used for personal contributions, these amounts form part of your ‘tax free' element of your super benefits. If the contributions where made after 1st July 2007 they are now called Non Concessional Contributions and would also form part of your ‘tax free’ element.

Untaxed rollover
This is a rollover from an untaxed source. The taxable component of an untaxed rollover will consist, in whole or part, of an untaxed element which is taxed by the receiving fund at 15%. Untaxed elements above $1 million are taxed at 46.5%. This tax is withheld by the paying fund.
An untaxed source is generally a super scheme where tax has not been paid on taxable or pre-tax contributions and earnings. These are usually only from Public Sector Super Schemes, eg Comsuper.

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