Question

QUESTION 5

Bennett is concerned that he is not going to have enough money to retire. He went to a financial adviser who said he should put as much money as possible into superannuation. Bennett is employed at Paflagonia Pty Ltd. He salary sacrificed $20,000 into superannuation. This was in addition to the $10,000 that his employer was legally required to contribute. Bennett also withdrew $300,000 from his bank account to contribute to his superannuation fund. This is the first time that Bennett has personally contributed any money into superannuation.

REQUIRED

Explain to Bennett the tax consequences in relation to contributions into his superannuation account for the current year.

Answer 1

As per the ATO, the tax consequences in relation to the contributions into Bennett superannuation account will be as follows:

• Tax on pre-tax contributions

Under this category, the pre-tax contributions will come which are following as per the question:

Salary sacrifice of $ 20,000

and, employer contribution of $ 10,000

So, total amount of pre tax contributions comes equal to $ 30,000

Taxation rules for pre tax contributions are following :

a) These will be taxed at 15% if per year income of Bennett is less than $ 250,000 and at 30% if per year income of Bennett is $ 250,000 or more than it.

b) And, the limit applicable to the pre tax contributions to superannuation fund is of $ 25,000

c) Any contribution beyond the limit of $ 25,000 will be taxed at marginal rate.

Therefore, Bennett has to pay the tax at the rate of 15% (if annual income is less than $ 250,000) or 30% (if annual income is $ 250,000 or more) on the amount of $ 25,000.

And, the rest of $5000 ($30000-$25000) will be taxed at the marginal rate.

• Tax on post tax contributions

Under this category, the post tax contribution will come which is as follows:

$ 300,000 which are withdrawn by the Bennett from his bank account to contribute to superannuation account.

Taxation rules for post tax contributuons are following :

a) No tax is applicable on these contributions upto the limit of $ 100,000

b) For beyond the limit contributions, the person has to pay the tax at highest marginal rate.

Therefore, Bennett don't have to pay any tax on the amount of $100000 but for $ 200,000 ($300,000-$100,000) he has to pay tax at the highest marginal rate.