Along with this raft of legislative change, the Australian Securities and Investments Commission (ASIC) has also introduced new licensing requirements for accountants who work with and advise Self Managed Superannuation Fund (SMSF) Trustees. Only approx. 10% of accountants have complied with these changes to date.
As such if you, as many, consider your accountant would be your 1st port of call for Financial Advice, they will likely advise you, they are unable to provide the information you require & should consult a qualified Financial Adviser / Planner.
This is general advice only and you should seek expert financial advice from a qualified financial adviser before acting on any of the information covered in these topics.
One of the few guaranteed returns available to investors are pre-tax super contributions and the power of compounding returns (the most powerful force in the Universe as described by Albert Einstein).
All Australian superannuants have the ability the contribute up the $25,000 to superannuation on a pre-tax basis i.e. ‘Concessional Contribution’ (CC) or ‘Salary Sacrifice' at a tax rate of only 15%. This $25,000 is inclusive of the 9.5% Superannuation Guarantee you will receive if you are an employee.
If you are earning over $37,000, you will be on a Marginal Tax Rates (MTR) between 32.5% and 47%. As such if you are taking advantage of up to your maximum $25,000 CC you are getting a guaranteed tax saving of between 17.5% and 32%, which is very attractive (CC for income earners over $250,000 is up to 30%, which still provides a very attractive guaranteed tax saving of 17%).
Given the new restrictions on what amounts can be accumulated in the tax friendly environment of superannuation, it is important that investors take advantage of this guaranteed tax benefit and allow the powerful benefits of compound interest to unfold for investors.
For example a superannuation investor taking advantage of their $25,000 CC limit at a compounding earning rate of 7.5%, less the 15% earnings tax applied to superannuation in the accumulation phase, would build balances as follows:
Over 10 years $318,675
Over 20 years $987,999
Over 30 years $2,401,655
Over 40 years $5,387,386
You can see how powerful this will be if a family unit (i.e. both a husband and wife) are maximising their CC to an SMSF where you can have up to 4 members (and potentially soon to be 6).
As Einstein said “Compound Interest is the 8th wonder of the world. The person who understands it, earns it. The person who doesn’t pays it”.