We are quitting work and travelling around Australia. How will it affect our super?

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Q. My partner and I regularly listen to your financial advice segment on Radio 4GR Toowoomba on Sundays. Congratulations on a very interesting show.

We are aged 57 and 52 respectively, currently working full time and we each have superannuation policies. Later this year we plan to resign from our jobs and go on a working holiday around Australia for an indefinite period.

We are both going to roll over our superannuation policies. Also we plan to set up an ABN as this seems to be a requirement of some of the farms on which we are going to work.

In order to avoid fees eating up what we have saved in our superannuation policies we are going to make regular payments into our respective policies.

We have two questions

1. are there any tax advantages in making payments into our superannuation policies from our joint ABN account; and

2. is there a set % requirement based on the gross as to what we are required to pay into our superannuation policies e.g 9% or as self employed is that up to us.

We hope you can help. Looking forward to your reply

Josies answer: Thank you listening to Money Matters and I greatly appreciate your feedback. I am having so much fun and thoroughly enjoy answering questions on the radio and this website.

It is obvious there is such a great need for this type of service.

I am particularly passionate about this free service and rely heavily on word of mouth to keep it going (in other words, the more people that use this website, the greater leverage I have to get corporate sponsors to help pay some of the bills).

Thanks for helping ‘the cause’.

You must be so excited about making the decision to quit the rat race for a while and take the trip of a lifetime. Not sure I can call you a grey nomad, because you are both still quite young (50 is the new 40!).

You mention that in order to avoid fees eating up what you have saved in your superannuation policies, you need to make further contributions after you resign from your jobs.

The first thing you need to do is ensure that the fees are competitive and I must admit I am puzzled as to why you have to contribute to save fees.

Do you get a discount if you do contribute? Please check the administration and investment management fees and compare with other superannuation funds.

Don’t forget to also check whether there is a commission or fee being paid to a financial planner.

I have absolutely no problem with financial planners receiving remuneration from superannuation funds, as long as they are providing a personal service.

Also be aware, that fees only account for one part of the equation. Remember, investment returns also make a difference, but more difficult to control as we don’t have a crystal ball.

The following websites might help:-

• SelectingSuper - Home
• SuperRatings, Australia’s first organisation truly specialising in researching all parts of Australia’s major superannuation funds.
• Superannuation fund comparison worksheet - Australian Securities and Investments Commission

As usual, answering your two questions can’t be done in 50 words or less. So here goes:

There are plenty of tax advantages associated with superannuation, in particular concessional contributions i.e. gross salary contributed e.g. superannuation guarantee, salary sacrifice, self employed.

These are taxed at 15% on entry to the fund. You will definitely save lots tax if your personal rate of tax is 30% or more (those currently earning more than $30K pa).

For your info, investment earnings within a superannuation fund are also taxed at a maximum of 15% (a lot less if you invest in Aussie shares with franked dividends).

You mentioned that you plan to travel later this year, therefore, part of the year you will be classified an ‘employee’ and part of the year you may be classified as ‘self employed’.

The maximum amount of concessional contributions you can each contribute during the financial year is $100K (because you are both over 50 - $50K for those less than 50 years of age). You need to include contributions made by your current employer.

The question that arises is whether you will be considered to be self-employed and therefore able to claim a tax deduction for personal contributions to super? There are a number of criteria, but in your case the one that will be relevant is that ‘less than 10% of assessable income and reportable fringe benefits must be attributable to employment as an employee’.

For example, if you earn $50K gross for the financial year, you will not be able to claim a tax deduction for contributions you make to your super fund if your current employer or any future employer paid you more than $5K.

All is not lost if you are unable to claim a tax deduction. Non-concessional, also known as personal contributions, are not taxed on entry to the super fund (not because the government loves you, but because they are ‘after tax’). The maximum non-concessional amounts that each of you can contribute is $150K per year or $450K over a three year period (if you less than 64 years of age). Hope you are still with me?

So to answer question as to whether there will be tax advantages if you contribute to super using your ABN. Yes, especially if you are eligible to claim a tax deduction. I would suggest you contact your accountant before you depart.

Your second question is simple. You are not obligated to pay super if you are self employed. However, the tax benefits associated with super are too good to ignore.

Just another thought. You mention you are 57 years of age. If you declare that you are permanently retired when you resign from your current job, you will be able to access your super.

The first $140K is tax free with the balance taxed at 16.5% (concessional contributions). Please don’t be too tempted, as it will be tax free at age 60, so you might miss out on some great tax savings by withdrawing early.

A popular strategy for those aged between 55 and 60 who want to reduce their work hours, but not their income is ‘transition to retirement’. Basically, it allows you to contribute to super and get the tax benefits, and at the same time, draw income from the superannuation you have already accumulated. You will need to sit down with a financial planner to explain it in some detail.

Hope my thoughts help and I wish you and your partner a fantastic and safe working holiday. Happy Money Organisation. Josie Kay

Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs.

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