Bankruptcy, Superannuation & What Comes Next

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.

Unpaid Super Is The Worst Form Of Wage Theft – Have You Checked?

Do you trust that your employer is paying you the right amount of superannuation just because it says so on your payslip?

Every year, thousands of employers fail to pay their staff the correct amount of superannuation, costing those workers billions of dollars every year. In many instances, it’s an honest mistake and easily rectified.

However, some malicious employers are looking to avoid having to pay you the correct super guarantee. You may not have realised it either if you are trusting the information on your payslip.

With the super guarantee increasing to 11% from 1 July 2023, now is the perfect time to double-check the numbers.

How Do I Check?

Checking for unpaid superannuation is very simple. You can:

  • Call your superannuation fund directly or
  • Check your statement online

If you are unsure of the amount of superannuation owed, you can also contact the Australian Taxation Office (ATO) to chase down the unpaid superannuation. They will be able to determine if there has been an offence committed and will be able to punish them. However, if a company is going through insolvency proceedings and you haven’t been paid superannuation, it can get a little more tricky.

In this instance, the ATO won’t pursue the unpaid super, but you can legally pursue the company directors in court.

If your superannuation payments are incorrect, you may want to speak with your employer or the person in charge of payroll to rectify the situation. If it becomes more complex, speak directly with the ATO to escalate the issue.

Are You In A Position To Boost Your Spouse’s Super?

Depending on your relationship, you may have discussed with your partner the prospect of marriage. Or you might be more comfortable remaining in a long-term de facto relationship (especially since many de facto relationships have similar rights as those of a marriage).

You might share many things with your partner (such as a mortgage, a family, or a car), but did you know that you could boost their super for them?

Specifically, if you (or your partner) could not work for a long time, such as during maternity/paternity leave or unemployment or are a single-income household, the super fund of the non-working part of the pair might not be increasing. As a result, the retirement savings held in super for one member of these households may not be increasing as exponentially fast as the working member.

The good news is that when in a relationship, a spouse can boost their non-working partner’s super fund with their own contributions. The best part? It could be a tax write-off for the working spouse.

Under Australian superannuation law, a spouse can be a legally married partner with whom you live or your de facto partner. That gives additional benefits to those in de facto relationships, who can choose (if one member of the relationship isn’t working or earns less) to boost their partner’s super fund. A spouse must also be younger than 75 years old when you make the contribution.

One of the primary losses of super gains that can occur is a result of maternal or paternal leave. If you and your spouse are thinking about starting a family and may have to take time off work during the pregnancy, spousal contributions can be a great way to continuously inject funds into super so that the gap from the pause in employment can be mitigated.

If you are looking to help your spouse’s super grow, there are two ways that you can go about it.

  • Making a Spouse Contribution to their super account
  • Arranging for Contribution Splitting (also known as Super Splitting)

Spouse superannuation contributions can now be made for spouses earning up to $40,000 annually. If a spouse earns less than $37,000, the maximum tax offset of $540 can be claimed when contributing a minimum of $3,000 to their super. Anything contributed that is more than $3 000 will not receive the spouse contribution tax offset.

You will not be able to claim the tax offset if:

  • A spouse has exceeded their non-concessional contributions cap for the financial year or,
  • Their super balance is $1.7 million or more on 30 June of the previous financial year in which the contribution was made.

Another way to inject funds into your spouse’s super is to choose to have some of your own super contributions put into their super account. This is fine as long as they have not reached their preservation age yet, or are between their preservation age and 65 years and not retired.

Super contributions can only be split in the financial year immediately after the year in which the contributions were made or in the same financial year as the contributions were made. This is only if your entire benefit is being withdrawn before the end of that financial year as a rollover, transfer, lump sum or benefit.

Contributions can be split in two different ways.

  • Employer contributions – the most common form of super contributions to split
  • Personal tax-deductible contributions – money that you deposit into your super and claim a tax deduction.

Spouse contributions are generally treated differently to contributions your spouse splits with you.

If your spouse makes a contribution for you, it counts towards your non-concessional contributions cap – not your spouse’s contribution caps. If you are currently employed by your spouse, any contributions they may have made in this role are reported as employer contributions (not spouse). They may also include amounts transferred from your spouse’s or ex-spouse’s FHSA under a family law obligation.

If you are looking into spousal contributions into super, it is best to seek the advice of your financial advisor or superannuation provider to best determine what path you should take.

The Average Super For Women Is ⅓ Of A Man’s – How Do We Bridge The Gap?

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.

Contributions To Your SMSF Need To Be Made By 30 June – Know What Counts?

Since superannuation contributions come in several forms, SMSF members would be wise to understand what contributions are available and how they might impact them regarding the contribution limits.

The ATO considers a ‘contribution’ as anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

SMSF members must keep track of contributions their employer, themselves or others make on their behalf into their self-managed super fund. When deciding whether an event is a contribution, a person’s objective purpose will be considered.

For example, an increase in an SMSF’s capital due to income, profits and gains arising from using the SMSF’s assets is not derived from someone whose purpose is to benefit the members. However, it may still be viewed as a contribution.

Other situations where an SMSF member may not be aware that they have contributed include:

Cash And Eft Transfers

A cash contribution or EFT transfer is made when an amount is received by the SMSF trustee or credited to the relevant SMSF bank account.

How the transfer occurs is relevant to whether the fund’s capital is increased and when a particular contribution is made. An amount set aside but not paid is not a contribution. However, an actual payment or reimbursement for certain expenses incurred by the fund may constitute a contribution.

Property Transfers

Members can transfer assets as business real property to their SMSF. These contributions will be subject to contribution cap limits.

Share Transfers

Members can transfer shares (in a publicly listed company) to their SMSF. The value of the shares is regarded as a contribution and subject to the contribution cap limits.

Improvements To An Asset

Where the capital of the SMSF is increased due to the improvements of the SMSF’s assets e.g. when a fixture is added to an SMSF’s property.

Payment Of A Liability

This is where a member pays the SMSF’s expenses, which results in a capital increase. In instances where a member satisfies an SMSF’s loan obligations as a guarantor to a loan, this may constitute a contribution as the guarantor’s payment removes the fund’s liability and therefore increases capital.

Are You Ready To Retire?

Thinking about your grand retirement plan of setting about the country as a grey nomad? Want to be able to spoil your family after you finish working? Or are you simply wishing to ensure that you’re financially set to live out the rest of your life as you’d like?

No matter how you want your retirement to pan out, planning out the financial aspect can feel immense. How much would you need to retire? Will it be possible for you to retire when you want to, or will you need to continue working? That’s why the sooner you start your retirement planning, the better.

The amount to ensure a comfortable retirement is a lot more than what a modest one would need (and going up year by year). If that’s what you’re after, you’ll want to have your plan in place as soon as possible.

Here’s how you can plan for a safe and secure retirement.

  • Work out how much money you should have in your super by the time you reach your preservation age.
    • Make sure that you have the right structure for your super fund and the right allocation of your assets for your needs in place (whether they’re high return, balanced, or conservative).
    • What do you want to be able to fund in your retirement? Will the amount in your accounts cover it? Consider:
      • your social life and recreation – will it cost money to attend gatherings, events, trips?
      • How you will be staying active and healthy.
      • The different retirement living options available – may include relocating to a new city or if you will need to go into a nursing home at any point in your retirement
      • helping the kids, if you have any.
    • Start planning as early as you can – ideally, your 20s is the perfect time to start setting money aside or investing for your retirement. The compound interest affecting your savings could become your best friend after all over the course of 40+ years.
    • Consider what your existing debts might be when you’re approaching retirement age – will you be paying off a home loan, or a car? Have you furthered your education and still need to pay off your debt? Work out what you might need to take into account as an additional expense towards paying off the debt.
    • Work with a professional (like us) to sort out your financial situation and get assistance with fully implementing a plan to get you to a comfortable retirement.

Superannuation Contributions & My Return: What Can I Claim?

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?

Superannuation Tips For The Self-Employed

For self-employed individuals, superannuation may become a neglected aspect of your payroll to yourself. It is not a requirement for self-employed individuals to pay themselves it (though it is strongly recommended).

To prevent losing out on the compounding interest of superannuation (and a potentially boosted financial situation in your retirement), paying superannuation contributions now can help to feel more secure in the long run.

Contributions you make to your super will only be taxed at 15%. Depending on which tax bracket you fit into, this might be a concession compared to your usual tax rates.

Additionally, investing your super will most likely yield a higher return than putting your money into a bank savings account.

You should be able to contribute to your pre-existing super fund after becoming self-employed. All you need to do is provide the fund with your tax file number (TFN) so that your contributions can be added to the fund.

There are two ways you can contribute to the fund, which are dependent on how you receive income:

  • Wage: Make regular transfers to the super fund from your pre-tax income
  • Income from business revenue: Transfer lump sum amounts when there is sufficient cash flow

If you make contributions to the super fund from your pre-tax income, then you can claim tax deductions for them. Your overall taxable income is reduced as well. Make sure you complete a ‘Notice of Intent to Claim’ so that you receive this deduction.

There are limits to the amount of money you can contribute to your super every financial year:

  • Up to $27,500 in concessional contributions (from pre-tax income, so you can claim a deduction)
  • Up to $110,000 in non-concessional contributions (from after-tax income)

For example, employers contribute at least 10.5% of an employee’s earnings to their super – if you are not sure how much to contribute yourself, this could be a starting point.

If you are a low-income earner, you may meet the eligibility criteria for government super co-contributions.

Although it may be difficult to make super contributions when self-employed, consider starting the process so that you have some financial security when you are in your retirement period.

Calls For Super To Be Paid With Payroll

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.

What’s In The Works For Superannuation?

Superannuation was not a source of significant surprises in this year’s Federal Budget, as many of the changes announced had already been previously discussed. However, these changes are still important to consider when planning your superannuation strategies for the next financial year.

$3 Million Super Balances & Tax

As announced in March 2023, extra tax will need to be paid on the earnings associated with superannuation balances over $3 million. This will be a tax paid by the individual based on the growth in their superannuation accounts over a year, in proportion to their total super balance of over $3 million.

For example, you will only be taxed at the 30% rate on the excess over $3 million – the $3 million will be taxed at 15%. You can pay this amount yourself, or release it from super to pay it.

However, this measure will not come into effect until the 2026 financial year.

Payday Super

Businesses will soon have to pay their employees super along with each pay run. If you pay your employees weekly, you will also have to pay their superannuation weekly. This will come into effect from 1 July 2026, so payroll systems can be altered and amended to suit the changes. If you need assistance with this process, feel free to consult with a professional advisor, like us.

NALE Changes

The previous government introduced changes to what is known as Non-Arms Length Expenses (‘NALE’) of Self Managed Superannuation Funds. Where a fund underpays a related party for services or assets, then the fund is subject to 45% tax on either any earnings related to that expense or where you can’t relate an expense to any particular earnings, it is 45% tax on all the earnings of the Fund. The amendment will limit the tax on any non-arms length expense that doesn’t relate to any particular earnings to 45% at double the value of the expense.

With these changes to superannuation to take place over the next few years, it is important to discuss with a professional adviser any action you may need to take in preparation. Start a conversation today