By Brian Willett of Fincare Accounting & Planning

In this issue of Finance Matters the taxation benefits of super are explained.

I recently heard someone say their accountant doesn't like superannuation.

The brief explanation was that due to government changes there is an uncertainty as to the ability to access money in the future if placed in superannuation funds.  As I have heard this from clients as well I thought I'd demonstrate why I believe it is too good an opportunity to pass up.

Money placed in a superannuation fund is deductible (within thresholds).  If we assume you are in the top tax bracket then you would pay 48.5% on any earnings not directed to super, although the superfund does pay 15% on the contribution it receives.  A net saving of 33.5% on the way in.

If you don't contribute to superannuation and invest privately (again assuming top rate of tax) you pay 48.5% on the earnings.  Within a superfund you pay 15% on the earnings.

Upon retirement the earnings of a superfund are not subject to tax.  When drawing a pension the money paid to the individual is subject to tax, but it receives a 15% rebate, so you are paying 15% less tax on retirement earnings, than if you didn't use superannuation.   From 1 July 2007 you won't pay any tax on withdrawing funds from superannuation.

Summarising, you save up to 33.5% on the way in, up to 33.5% once it's in there and 15% in retirement.  Overall savings too good to pass up.

In terms of politicians changing the rules on super, it is a fact of life.  The current changes have been in favour of the taxpayer, with the abolition of the surcharge, and the removal of tax on withdrawing funds in retirement, which reflect the economic reality that by encouraging superannuation the government will save paying old age pensions, which they will struggle to afford.