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Have you ever wondered what happens to superannuation when someone claims bankruptcy?

Bankruptcy is a legal process that can be commenced when you are declared unable to pay your debts. It is a process that can release you from most debts, provide relief and allow you to make a fresh start.

However, bankruptcy is not a process to enter into lightly.

There are two ways to enter into bankruptcy. These are:

• Voluntary Bankruptcy: The Australian Financial Security Authority appoints a trustee when you become bankrupt. This trustee is a person or body who manages your bankruptcy.

• Sequestration Order: Where you nominate yourself for bankruptcy by submitting a Bankruptcy Form.

When you become bankrupt, the Australian Financial Security Authority appoints a trustee. This trustee is a person or body who manages your bankruptcy.

The trustee can take any cash or money you have in a bank account at the date of bankruptcy but should leave you with enough for modest living expenses.

During your bankruptcy, you can keep the income that you save. However, you may have to make compulsory payments if your after-tax income exceeds a set amount. This amount changes with how many dependants you have.

When you are bankrupt:

• You must provide your trustee with details of your debts, income and assets.
• Your trustee notifies your creditors that you’re bankrupt, preventing most creditors from contacting you about your debt.
• Your trustee can sell certain assets to help pay your debts.
• You may need to make compulsory payments if your income exceeds a set amount.

What Happens To Superannuation?

When someone goes bankrupt, their bankruptcy trustee can recover or sell any assets considered divisible property.

The Bankruptcy Act sets out what is and what isn’t divisible property.

A bankrupt’s superannuation is generally not considered divisible property and is not available to a bankruptcy trustee.

However, it depends on when and how you receive your super. Your trustee must be notified if you receive superannuation before or after your bankruptcy begins.

If Received Before Bankruptcy

• Super payments received before bankruptcy are claimable by your trustee
• Any asset purchased with those funds (such as a house) can be claimed by the trustee

For example, if you have taken funds out of your superannuation fund before bankruptcy and you still hold them in your bank account at the time of bankruptcy, the funds will be considered divisible property and you will have to pay any funds still held to your trustee.

This includes both funds taken out as a lump sum and as a pension.

If Received During Or After Bankruptcy

Super payments that are during or after bankruptcy:

• are not claimable by your trustee if it is a lump sum payment

• your trustee cannot claim assets you purchase with those funds, e.g. car.

An exception is where your super isn’t in a regulated fund, approved deposit fund or an exempt public sector scheme. Your trustee can claim super not held in these types of funds.

Received As Income

During bankruptcy, the super you receive as an income stream (e.g. a pension) forms part of your assessable income. You may need to make compulsory payments if your income exceeds a set amount.

Self-Managed Super Funds

Someone bankrupt cannot be a trustee of a self-managed super fund. If you have a self-managed fund, you must advise your trustee. You must cease acting in this position and notify the ATO within 28 days. See the ATO website for more information about removing yourself as a trustee.

Are you facing bankruptcy and concerned about risks to your superannuation fund? Speak with a licensed professional today.

The superannuation gender gap has been a subject of serious concern for at least half of Australia’s population.

Women are more likely to have significantly less money saved for their retirement, less assets and far less super than men, putting them in a place of greater financial stress and concern.

For example, a woman in the 20-24 age bracket may have an average super balance of $8,051, while a man in the same bracket is expected to have an average balance of $9,481. In the 40-44 age bracket, the average super balance for men is $134,992, while women in that age group may only possess $98,572.

The superannuation gap is facilitated by various factors that often adversely affect women more than men.

Men and women may have different super balances due to pay gaps, salary differences and potentially the amount of time they have spent working (maternity leave, working part-time versus full-time etc., taking time off work for travel, etc.).

Some key contributing factors include:

Pay Disparity (The Wage Gap)

In Australia, the gender pay gap is 22.8%.-  for every $10 earned by a man, a woman (on average) will only earn $7.72.

Caregiving

Time taken out of the workforce for the purpose of caregiving is predominantly done by female employees. Females account for more than 70% of primary caregiving, on average, taking five years out the workforce. Their caregiving responsibilities may range from childcare to looking after ill or elderly family members.

Part-time Workers

Women are more likely to work part-time or casually than men, contributed to by a lack of workplace flexibility to accommodate care responsibilities. This not only affects the amount women earn, but career and wage progression.

Compound Interest Effects

Compound interest makes super a powerful tool when saving for retirement as interest is paid on both the principal and interest from past years: a bit like the snowball effect – over time you see exponential growth.

A lifetime of earning widens the gap, and compounding interest deepens this divide. Males are earning compound interest on their more considerable savings, which means more interest in the long term.

There are three proposed measures concerning how the superannuation gap could be addressed at a macro level. These include:

• Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women, and it is a leading cause of the gap exacerbation.
• Allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is harming women’s superannuation outcomes, so the policy needs to be changed accordingly.
• Amending the Sex Discrimination Act to ensure employers can make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred until legislative action is taken to amend this discrepancy:

• Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
• Salary-sacrificing contributions into their super to make up for the shortfall from not working in the previous year.

If you are concerned about your superannuation or would like further advice, please speak with us.

In some circumstances, superannuation contributions can be claimed on your tax return if made to a super fund or retirement savings account. However, these circumstances are limited and may require professional advice to maximise the benefits.

Superannuation contributions paid by your employers directly to your super fund from your before-income tax cannot be claimed. These contributions include:

• The compulsory super guarantee (increasing to 11% on 1 July 2023)
• Salary-sacrificing super amounts
• Reportable employer super contributions.

However, your superannuation contributions to your super fund from your after-tax income can be claimed. The personal super contributions you claim as a deduction will count towards your concessional contributions cap.

Super contributions that can be claimed as deductions may include

• contributions made prior to 1 July 2017 if
  • they were made to a complying super fund or a retirement savings account (we’ll refer to both as ‘your fund’)
  • your earnings as an employee were less than the maximum allowed
• for contributions made on or after 1 July 2017, you made contributions to your fund that was not a
  • Commonwealth public sector super scheme in which you have a defined benefit interest
  • Constitutionally protected fund (CPF) or another untaxed fund that would not include your contribution in its assessable income
  • super fund that notified us before the start of the income year that they elected to either treat all member contributions to the
    • super fund as non-deductible
    • defined benefit interest within the fund as non-deductible
• you meet the age restrictions
• you have given your fund a Notice of intent to claim or vary a deduction for personal contributions (NAT 71121)
• your fund has validated your notice of intent form and sent you an acknowledgment.

Specific contributions cannot be claimed as tax deductions. These include:

• a rolled-over super benefit
• a benefit transferred from a foreign super fund
• a directed termination payment paid into a super plan by an employer under transitional arrangements that applied until 30 June 2012
• contributions paid by your employer from your before-tax income (including the compulsory super guarantee and salary sacrifice amounts)
• First Home Super Saver (FHSS) amounts that you have re-contributed to your super fund(s)
• contributions to
  • a Commonwealth public sector super scheme in which you have a defined benefit interest
  • a super fund that would not include the contribution in their assessable income, such as an untaxed fund or a constitutionally protected fund (CPF)
  • other super funds or contributions specified in the regulations
• contributions made from 1 July 2018 to a super fund that are identified as downsizer contributions
• re-contribution of COVID-19 early release of superannuation amounts.

When deciding whether to claim a deduction for super contributions, you should consider the super impacts that may arise from this, including whether:

• you will exceed your contribution caps
• Division 293 tax applies to you
• you wish to split your contributions with your spouse
• it will affect your super co-contribution eligibility.

If you exceed your cap, you must pay extra tax, and any excess concessional contributions will count towards your non-concessional contributions cap.

Your super fund must be notified before claiming the tax deduction against your personal super contributions. You must give a notice of intent to claim or vary a deduction to your fund by the earlier of either the:

• day you lodge your tax return for the year in which you made the contributions
• end of the income year following the one you made the contributions.

Your fund must send you a written acknowledgment telling you they have received a valid notice from you. You must receive the acknowledgment from your fund before you claim the deduction on your tax return.

Maximising your superannuation’s potential could start with boosting your savings with contributions. However, seeking professional advice or guidance before commencing is advisable, as failure to lodge a notice of intent to claim or vary can become an issue.

Why not start a conversation with us to see how we can assist?

There’s been a lot of buzz around superannuation since the 2023-24 Federal Budget was announced. One such buzz involves the concept of ‘payday super’.

Payday super has been introduced by the government to avoid the discrepancies that those in lower-paid, casual and insecure work often encounter with their superannuation compared to others in more secure positions due to less-frequently paid super.

Employers are currently required to pay the superannuation guarantee of 10.5% on top of employee wages every quarter, even if workers are paid more frequently in fortnightly or monthly pay cycles.

The idea behind payday super is that rather than employers pay their employees their superannuation quarterly, they will be expected to pay it to employees when their pay cycles are run (on ‘payday’). This reform is to come into effect from July 2026.

Aligning the payment of superannuation with wages and salaries will increase retirement incomes through greater compounding returns.

For example – a 25-year-old on an average income who currently receives their super quarterly and their wages fortnightly could be up to $6000 or 1.5% better off at retirement.

More frequent super payments could also help employers by making payrolls smoother, with fewer liabilities building up on their books and making it harder for employees to be exploited by disreputable employers.

Unpaid super is a key issue afflicting the current superannuation system, with an estimated $5 billion missing from Australian employees.

Currently, Australian employees are vulnerable to exploitation if their employer fails to make the required superannuation contributions.

These workers often rely on ATO intervention to recover lost super. However, the ATO can only generally recover up to 15% of owed superannuation.

Could This Assist In Bridging The Gender Gap? 

Another issue for which this may lead to some form of amendment is the gender gap in superannuation.

Women are often victims of this exploitation of unpaid or missing super due to gaps in employment that may occur, affecting how their superannuation compounds and/or stagnates. This could be from taking time off work for caregiving reasons, the overall pay from their job, or even just taking maternity leave. Women are also more likely to be employed in certain areas and industry jobs where they are at risk of unpaid super.

It is believed that women will likely earn $135,000 less than their male counterparts over their working lives as a result. Payday super could potentially lead to further action regarding improving the retirement outcomes for women who take time out of the workforce, such as paying super on paid parental leave.

What Risks Are There To My Business?

Some employers may face cashflow issues when paying superannuation at the same time as payroll. However, three years of notice has been given to those who may have these issues to adjust their cashflow practices and make arrangements. To avoid compliance issues with the requirements to be instated in 2026, it’s best to update payroll systems beforehand.

Not sure where to start? Speak with your trusted business adviser today. We’re here to help with the complexities that can arise with payroll.

If you’re a trustee of a self-managed super fund, some reasons or circumstances could have emerged that may result in you wanting to get out of that fund.

These may be personal circumstances (such as a divorce or another trustee dying), financial reasons (investments not performing as they should or you aren’t taking a pension after retiring) or you simply may not have the time to manage it efficiently anymore.

Whatever the reason, getting out of a self-managed super fund is no easy task. An SMSF cannot simply be placed ‘on hold’ as it were, as an SMSF must be completely closed down (unless members are remaining). You cannot simply take your funds out of the SMSF, especially if it is in the name of multiple trustees.

Getting out of your SMSF can be a complex process, with a lot of paperwork and responsibilities you must ensure are met. Failing to meet those responsibilities as a trustee, even when winding up your SMSF, could lead to financial and legal ramifications (such as penalties and fines).

Though some of the steps for winding up an SMSF might be self-explanatory, ensure you cover your bases by ensuring that the following steps are followed.

Consent Of Trustees Must Be Obtained

As with most decisions that are to do with an SMSF, consent from the fund’s trustees must be obtained in writing at a trustee meeting. A resolution that the SMSF is to be wound up is to be made and all trustees need to agree to it. This must be minuted and signed by all trustees.

After this consent is obtained, the Australian Taxation Office (ATO) must be notified of the fund being wound up within 28 days of the decision being made.

Check Your Trust Deed

This may contain instructions or information pertaining to how your SMSF needs to be wound up and the specific steps that need to be taken. Work Out What Will Happen To Member

Benefits

An SMSF can only be closed when there are no funds available, so any existing monies within the account need to be paid out to members who are able to access their super (if they have met a condition of release) or rolled over to another super fund.

You also need to take into consideration events that may affect other members’ transfer balance accounts (which may need to be reported by the SMSF).

Paying Out The Fund to members

If members are still in the accumulation phase, they need to rollover their funds into another super fund. This can be any kind of super fund – such as industry and retail funds – and doesn’t need to be another SMSF. You also need to take into account if any of the assets within the SMSF will incur Capital Gains Tax if they are sold to fund member benefits payouts.

Appoint An Auditor

Appoint an auditor to complete a final audit of the SMSF before you lodge your final tax return. They must be ASIC approved. The audit will help you to finalise the tax obligations of the fund, including CGT and taxable income received by the fund through investment returns or member contributions.

The ATO will then examine the audited accounts and determine whether there are any final tax obligations or refunds due. Any final tax owed can be paid from funds remaining in the SMSF’s accounts.

Approval By The ATO For The Fund To Close

Finally, the ATO will send you a letter stating that your SMSF’s ABN has been cancelled and your SMSF’s record has been closed on the ATO’s system. This letter confirms that you have met all reporting and tax responsibilities, and you can now close the fund’s bank accounts.

Closing an SMSF is a complex task; you should not attempt to do it alone. Please reach out to a licensed adviser if this is something you are contemplating.

Last week, the government announced a change to superannuation, introducing a new tax that will apply to member balances above $3 million.

From July 1, 2025, super earnings over $3 million will be taxed at 30 per cent, double the current rate of 15 per cent. According to the government, this change aims to ensure that sustainability and fairness remain central to the system.

To put it into perspective, the average Australian super fund contains an average balance of $150,000, and about two-thirds of Australians have less than $100,000.

This new tax concession increase will affect about 80,000 people, who will continue to have more generous tax breaks on earnings from the $3 million below the threshold (which will not rise over time). This will not be retrospectively applied and will only apply to future earnings.

A person with $3 million in super will likely receive a tax benefit at 30% still. However, serious thought could be given to leaving money in superannuation, where the tax rate is the same as putting it into a company.

Other considerations that may need to be thought through include

• If you die and leave that super to non-death benefits dependent, they will pay 15% on the entire taxable component, leading to an effective tax rate of 45% on the earnings.
• Taking money out of the company will come with franking credits but may put you in a position of paying top-up tax. Conversely, leaving it in the company and leaving the shares to a testamentary trust may allow you to pay dividends without further tax.
• A company does not need to comply with any SIS rules so that you can have in-house assets, loans to members etc.

Any actions taken should be done with consultation with a professional adviser to comply with legislation and regulations.

As these changes to super balances of over $3 million will not take effect until after the next election, there is plenty of time to plan and model out the best path for your situation (if you are one of the few who this will affect). You will need an actuarial certificate to determine what percentage of the fund’s income will be taxed at 0%, 15% and 30%.

While the average Australian super fund may be far below this threshold, that doesn’t mean a fund cannot be increased. Through voluntary contributions, including concessional and non-concessional contributions, you can help to boost your nest egg to a comfortable level.

Do you want to know more about tax breaks, concessions, or ways you could contribute to your superannuation? Speaking with a licensed professional is the best way to start.

No matter the kind of super fund you opt for, or how it has been performing, you will be subject to super fees. Understanding how these fees work and the difference they can make to your nest egg is vital.

When it comes to super fund fees, there are two factors you need to get your head around; the kinds of fees you are being charged and the rate of fees you pay. Opting for a super fund based on these two factors can see you retire with hundreds of thousands of more money.

You should be aware of the various types of fees you are being charged. If you would like to find out the fees you are being charged, you should do two things.

Firstly, Google your fund’s product disclosure statement and scroll through to the fees section. You should see a list of different types of fees, explaining what they are, how they are applied, and how often they will be incurred. Secondly, you should log in to your super fund account and note all the fees being charged to you. Investigate how closely these correspond and correlate with the product disclosure statement.

If you feel there are discrepancies, do not hesitate to contact your super fund or financial advisor and ask for clarification. It is worthwhile researching and comparing the fees you are being charged against other super funds and what they charge. Being complacent and not paying attention to your super is extremely irresponsible; the dividends you will receive later in life for being diligent now outweigh the burden of taking time to be informed today.

Some standard fees across the board include:

–        Administration fees: fees covering the costs of operating and managing your super fund account.

–        Exit fees: fees incurred for leaving or switching super funds. While this is a common fee, not all funds charge it.

–        Investment fees: fees incurred due to the cost of managing where your money is invested. These fees can fluctuate, depending on where your money is invested.

–        Activity-based fees: fees incurred for any activity you require your super fund to perform outside of the ordinary management of your account, such as a family law split fee.

Another major factor contributing to how much you accumulate in your super account throughout your working life is the rate of fees you pay. Plain and simple, some funds offer much lower fees than others, creating a difference of hundreds of thousands of dollars when it comes time to retire.

Generally, funds are categorised into three groups; low super fees, medium super fees and high super fees. You will need to weigh up your options and decide whether you want a fund that charges low, medium or high super fees. While it seems like the best option to choose a fund with low super fees, these funds do not necessarily perform as well as medium or high-fee super funds, meaning you will not get as good of a return on your investment.

Contractors who run their own business and sell their services to others have different obligations to their super than what employees in a business may usually have.

A contractor (also known as an independent contractor, a subcontractor, or a subbie) who is paid wholly or principally for their labour is considered to be an employee for super purposes, and may be entitled to super guarantee contributions under the same rules as other employees.

A contract may be considered ‘wholly or principally for labour’ if:

• You’re paid wholly or principally for your personal labour and skills
• You perform the contract work personally
• You’re paid for hours worked, rather than to achieve a result

If hiring a contractor to perform solely their labour for a fee, the employer may also have to pay super contributions on their behalf.

In this sense, if you are a contractor who is being contracted to an outside business than your own to perform your usual work or labour, your employer must contribute to your super the same way they would any other employee.

This could be seen in an example of an electrician who runs their own small business, or is employed by a small business who has been hired by another business to supplement their workforce and perform a specific role that they can fit to.

Take, for example, an electrician who runs their own business and has been subcontracted by a larger business.

They are performing labour but also providing materials (ie, themselves plus a toolbox plus a van full of powerpoints and wiring etc), they would be seen as a contractor and not an employee for super purposes. They must pay themselves super, in this case.

However if they are sub-contracted to perform labour only then the company that has sub contracted them may be liable to pay super on the amount that they pay to their contractor.  This would be the case where the electrician just turns up with their tool box and everything else is provided by the “employer”.

If they are in an employment-like relationship with the person that they entered their contract into, they may need to have their super paid to them by their contract employer. In order for super to be applied from what you earn, the contract must be directly between you and your employer. It cannot be through another person or through a company, trust or partnership.

It is important that both parties in the process are aware of their super obligations during the contracted period. There can be significant penalties for employers who use contractors if they fail to correctly pay super. Each case regarding contractors and super needs to be assessed independently to ensure that you are doing the right thing. There is no definitive black and white line between a contractor and a contractor in an employment-like relationship that can be obviously seen after all.

If you’re unsure about whether or not you’re meeting your obligations as an employer, or are a contractor looking to make sure their super is being correctly paid into, speak with us.

Downsizing during retirement can help you reduce costs and put some more money in your pocket so that you feel more secure about your finances during retirement.

Downsizing by selling your property has advantages and disadvantages, which you should evaluate before making this decision.

Advantages

• Increased cash flow: Downsizing should reduce your mortgage payments and free up extra money to invest or spend. This will give you more flexibility with your money in your retirement years.
• Easier to maintain: A smaller house takes less effort and is easier to clean and maintain.  Approaching retirement, you may want to reduce the amount of time you have to spend cleaning your house so that you can participate in other activities.
• More convenient: A new house will mean that you can choose a layout, fittings, locations and services that are more suited to your updated needs. While your old house might be close to schools, you may want to opt for a house that is closer to a recreational centre or the city centre (for accessibility to shops and services.
• Lower insurance and utility bills: A smaller home generally costs less. Both in terms of insurance and also in terms of upkeep and maintenance (such as heating and cooling).

Disadvantages

• Less space: A small house means that you have less storage for things. You might have to make some difficult decisions about letting go of your possessions. Alternatively, you could consider leasing a storage space – although this would cost extra money.
• Less flexibility: There may be less privacy due to fewer or no guest rooms or less space for entertainment. If you regularly have many guests coming over, this might make downsizing unideal.
• New neighbourhood: Getting comfortable in your new suburb might be difficult. You might have to check out your neighbourhood before and after moving into the new place.
• Emotional connection: A family home is full of memories, and there is a strong connection with it. This can make it difficult to let go.

Eligibility 

From 1 July 2022, eligible individuals aged 60 years or older can choose to make a downsizer contribution into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.

For downsizer contributions made before 1 July 2022, eligible individuals must still be aged 65 years or older at the time of making their contribution

On 3 August 2022, the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 was introduced into Parliament. In this, the Government has proposed that the downsizer eligibility age be further reduced to 55 years. This measure is not yet law.

Downsizing has financial benefits, but it does come with emotional costs and is a fairly significant decision to make. It may not be a solution for everyone, but it is one that you should consider carefully.

It is important to discuss the implications with your advisor and, perhaps also, your family members before determining how you will proceed.

When it comes to investing, there is always a certain amount of risk involved. The key to a great investment strategy is to discern how much risk you are willing to take.

The risk profile of your superannuation investment strategy should be determined by combining your financial goals and the time frame in which you want to achieve them.

As you get closer to retirement, you may care to reduce the risk profile of your investments.

Younger people are better positioned to deal with market fluctuations because they have more time to compensate for losses.

The returns you receive on investments are based on the income those investments can generate and the capital growth that the investments will experience. Investments can be broadly categorised into defensive and growth assets.

Growth assets typically have a better potential for high returns but carry short-term risks. Shares and property are examples of growth assets. Defensive assets, such as cash and term deposits, generally have a very low level of associated risk but will also yield lower returns.

By diversifying your superannuation investments between growth and defensive assets, you can fine-tune your portfolio to suit your circumstances.

Individuals running a self-managed superannuation fund should already have a robust understanding of their risk profile. However, if you are a member of a public fund it can still be possible to retain a high degree of control over your risk profile.

Some public funds offer broad investment categories that you can select (usually between five and ten). Others offer members a much higher degree of control over their portfolios, even going so far as to allow you to select specific companies to buy shares from.

Individuals interested in gaining a higher degree of control over their superannuation risk profile may wish to look at joining one of these more precise funds.

However, the downside is that these funds usually have much higher fees, potentially eroding the benefits of more control. Involved investors with an active interest in determining their risk profile may wish to investigate self-managed superannuation.

Before making any major decisions, consulting with a professional is advised.