Superannuation is one of your most important assets and should almost never be used to deal with your debt problems. There are 3 key reasons for protecting your Super:
- You’ll most likely need it to enjoy a comfortable retirement.
- It enjoys a range of tax incentives not available to other investments.
- It’s protected from your creditors in the event of any legal action and so using it to pay them voluntarily could be unnecessary and wasteful.
The key to a comfortable retirement
The stark truth is that like most Australians, you will probably have to find away to pay for 25 years or more without a full time income. With pensions providing only a subsistence living at best (around $18,000 a year for a single person), Superannuation is likely to be the main thing keeping you in relative comfort during those retirement years. It is therefore crucially important to preserve it. Certainly more important than any temporary debt difficulty you might be facing, no matter how severe it might seem right now.
Super enjoys a range of unique tax incentives
Because it’s so important to your wellbeing, your Superannuation enjoys a range of very attractive tax benefits. This is all the more reason to protect your account and continue investing in it. Some of these benefits are as follows:
- Salary Sacrifice. If you make contributions to your Super fund from pre taxed earnings above the 9% made by your employer, you will pay a maximum of just 15% tax on the contributions instead of your usual marginal tax rate (to a specified limit).
- Co-contributions. If you earn under $61,290 and make additional super contributions, the Government could match your contribution up to $1000.
- Spouse contributions. If your spouse earns under $10,800 per year and you contribute to their super, you may receive a tax rebate of upto $540.
- Pensions and Withdrawals after you turn 60. Once you turn 60, your lump sum withdrawals and pension payments will not be taxed.
- Small Business Capital Gains Tax concessions. As a small business owner, you can roll the proceeds of some asset sales into your super fund to minimise your Capital Gains Tax and boost your Super account. A lifetime limit of $1,100,000 applies to this concession.
Your super is protected from your creditors, so there’s usually no need to give it up voluntarily
In the event that your creditors launch legal action against you to recover their debts, such as having your wages garnished or having you sent bankrupt, some of your assets can be claimed. Cash savings, cars, homes, boats, expensive paintings may be taken and sold and your income may be docked. However, your super cannot be touched, so it seems folly to tap into it to try to repay your debts when there are so many other assets and revenue streams that could be accessed first.
Furthermore, the Federal Government has created legislation that makes it difficult to access your Super except for the following reasons:
- Medical treatment or transport related to medical care.
- Modifications to a home or vehicle as a result of a severe disability.
- Palliative care or burial.
- Mortgage repayment to prevent you having to sell their home.
The last of these is the only debt related situation where you would even consider accessing your Superannuation and even then, only if the solution was lasting and sustainable and you had exhausted all other debt relief options. If not, you would just be throwing good money after bad and may be better off considering a bankruptcy and protecting your Superannuation for those crucial retirement years.
To discuss some of the debt relief options that don’t involve depleting your Superannuation, feel free to call a member of our friendly team on 1300 802 905