FAQ - Frequently Asked Questions

Answers to your commonly asked questions about investment and retirement.

Technical Questions

  1. Entitlement to Co-contribution
  2. I am self employed, am I entitled to receive the Government co-contribution?
  3. Superannuation pension contribution
  4. Investment property deduction
  5. I am 60 years old, how will I be taxed if I withdraw my superannuation benefits? Does it matter if I take a lump sum or income stream?
  6. What are the Contribution rules?

Product Questions and Answers

  1. Does ClearView offer contribution splitting?
  2. Who is an eligible spouse for contribution splitting?
  3. What contributions are splittable?
  4. What contributions are not splittable?
  5. Understanding why 30 June distributions tend to be the largest for growth type unit trusts
  6. Understanding unit price behaviour following the payment of unit trust distributions
  7. Why does a unit price drop immediately after a distribution
  8. How are the "net earnings" and "return on investment" figures that appear on the client statements calculated?
Entitlement to Co-contribution
I am currently salary sacrificing part of my salary into superannuation. I am 65 years of age and earn a total of $25,000 in assessable income from employment each financial year. I do not earn any other income. Am I eligible to receive a co-contribution from the Government? Question dated: October 2006

Unfortunately you do not currently qualify as you have not made any personal after-tax contributions. As your total assessable income is less than the lower qualifying threshold of $28,980 you will be eligible for the maximum co-contribution amount if you make a personal after-tax contribution of $1,000.

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I am self employed, am I entitled to receive the Government co-contribution?

From 1 July 2007, the Government co-contribution has been extended to include the self employed, provided they meet the eligibility criteria. One requirement (amongst other things, such as income limits) is that you earn at least 10% of your income from employment or business income.

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Superannuation pension contribution

I am aware that once you "close" a superannuation account and change it over to a superannuation pension, further funds cannot be deposited. I have finished regular work and will be changing to a superannuation pension shortly, however, if later on I should do a paid temping job for a couple of weeks which will include superannuation contributions, where should the super be deposited? If it only amounts to, say, $200 it would not be sufficient to start off a new superannuation account for a separate allocated pension, so is it possible the Tax Office might allow it to be paid into my superannuation pension account? Question dated: October 2006

Unfortunately, you cannot add any further money to superannuation pension once it has begun. You could stop the existing superannuation pension and begin a new one and combine the existing superannuation pension funds with the additional superannuation contributions. Alternatively, you may simply wish to continue the existing superannuation pension and withdraw the extra contributions made to your superannuation fund, once you finish working, as a lump sum. If you are over 60 when you do this, you will not pay any tax on the withdrawal from your superannuation fund.

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Investment property deduction

I am interested in purchasing an apartment interstate as an investment property. Friends have said that my annual travel costs to inspect the property would be tax deductible. If this is true, how does it work? Question dated: October 2006

Travel costs that relate directly to the management of the investment property are tax-deductible in the year they are incurred. Therefore if you are managing the property or conducting the annual inspection on your visit then this may entitle you to claim at least a portion of the travel costs as a tax deduction. However, there is a limit as to how many trips you can claim. You will need to speak to your accountant to get further details.

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I am 60 years old, how will I be taxed if I withdraw my superannuation benefits? Does it matter if I take a lump sum or income stream?

From 1 July 2007, all taced superannuation benefits will be tax-free to you whether you withdraw the benefits as a lump sum or as an income stream.

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What are the Contribution rules?

If you are thinking of making large contributions into your superannuation fund, you should be aware of the rules relating to contribution caps (or limits) on certain contributions that you/your employer can make.

The limits are different depending on whether the contributions are taxable (generally meaning a tax deduction is claimed) or non-taxable (generally meaning that the contributions have not been claimed as a tax-deduction and come from post tax income). These are known as concessional and non-concessional contributions and the rules from 1 July 2007 are as follows:

Concessional Contributions

Concessional contributions are superannuation contributions made from pre=tax income for which a tax deduction can be claimed. They are also referred to as deductible contributions. Concessional contributions include your employer Superannuation Guarantee contributions, additional employer contributions, salary sacrifice contributions and contributions made by the self-employed for which they claim a tax deduction. These contributions are taxed at 15% within the fund.

From 1 July 2007, concessional contributions will be limited to $50,000 per person per annum, which applies, irrespective of the number of employers making contributions on your behalf.

If you are 50 years old or are turning 50 before 30 June 2012, you may take advantage of the transitional arrangements. Between the financial years of 2007/08 and 2011/12, concessional contributions will be limited to $100,000 per annum for people who are at least 50 years old in the year the contribution is made.

The Australian Taxation Office (ATO) will monitor all concessional contributions made on your behalf. If they exceed $50,000 in a financial year, you will be notified by the ATO. The excess contributions will be effectively taxed at the top marginal rate plus the Medicare levy. You will be able to instruct your fund to release monies and pay the tax liability or you may pay the ATO directly.

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Non-Concessional Contributions

Non-concessional contributions are contributions made from a person’s after-tax income. The terms ‘non-concessional contributions’, ‘post-tax contributions’ and ‘after-tax contributions’ are often used interchangeably. These were previously known as Undeducted Contributions.

You can make a non-concessional contribution into superannuation if you are:
64 years old or younger;
65 years to 74 years old and you satisfy the work test.
Individuals 75 years or over are not eligible to make a non-concessional contribution into their superannuation.

If you are under 65 years old, you will be able to contribute up to $150,000 per financial year or $450,000 if averaged over 3 years (ie you can bring forward your contribution limits from the next 2 financial years). If you are 65 to 74 years old, you will be able to contribute up to $150,000 per financial year (no ability to bring forward contribution limits from future years) if you meet the work test.
If you are under 65 and take full advantage of the averaging described above (ie contribute $450,000 in one financial year), this means that you won’t be able to make contribution in the two financial years following the year in which the contributions are made. However, if you go above the contribution limit for a financial year in the following two financial years your contributions will not be able to exceed the remainder of the averaged amount (ie contribution of $300,000 in year 1, in the following two years the contribution limit cannot exceed $150,000, when both years non-contributions are added together)

Non-concessional contributions below the cap will not be taxed again and will be tax free when withdrawn from superannuation. The earnings on non-concessional contributions, whilst taxable, are taxed concessionally at 15% in a superannuation fund.

There are two ongoing exemptions to the non-concessional cap.
The proceeds from the disposal of eligible small business assets are exempt up to a lifetime limit of $1 million (indexed).
The proceeds from a settlement for an injury resulting in permanent disablement are also exempt.

If you have exceeded the non-concessional contributions cap, the contributions in excess of the cap will be taxed at the top marginal rate plus Medicare levy (46.5%).

The ATO will assess your tax liability on excess contributions. You will receive a letter stating your tax liability arising from the excess contribution. You can then nominate a superannuation fund to release the monies to pay the liability. The balance of the excess contribution will be able to remain in the fund.

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Does ClearView offer Contribution Splitting?

YES, members in the Superannuation and Roll-overs Division of the Plan may apply to the Trustee to 'split' 'eligible contributions' with an 'eligible spouse'.
Contribution splitting applies to eligible contributions made within each financial year. The ability to split contributions is subject to any legislative requirements and conditions imposed by the Trustee. The Trustee reserves the right to change any conditions in relation to the contributions splitting.

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Who is an eligible spouse for contribution splitting?

An 'eligible spouse' of a Member is the Member's spouse (including de-facto spouse, but not including same sex partners).

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What contributions are splittable?

Contributions may be split on the following basis:

  • 85% of Taxed Contributions, provided this is not more than the concessional contributions cap of $50,000 (0r $100,000 if you are over 50 in the period up to 30 June 2012;

Taxed Contributions are generally:

  • contributions paid by an employer;
  • personal contributions for which an income tax deduction has been claimed;
  • superannuation holding accounts special account amounts transferred to superannuation accounts by the Tax office on or after 1 January 2006; and
  • allocated surplus contribution amounts.

If you are eligible to claim a tax deduction for personal contributions you make, please note you will not be able to claim a tax deduction where a contribution split has been made in respect of those contributions.

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What contributions are not splittable?

The following contributions are not splittable:

  • Personal after-tax (ie non-concessional) contributions;*
  • If your benefit is subject to a family law payment split;
  • The relevant contributions have been transferred or rolled over to a superannuation fund (this includes overseas superannuation benefits);
  • The relevant contributions have already been subject to an application to contribution split;
  • The relevant contributions were made to a defined benefit plan;
  • At the date your application to split contributions is received by the Trustee your 'eligible spouse' is 65 years or older, or is aged between their relevant preservation age and 65 years, and is retired.

* Prior to 5 April 2007, personal after-tax contributions (known as undeducted contributions) were able to be split. Any personal after-tax contributions made after this date can no longer be split.

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Understanding why 30 June distributions tend to be the largest for growth type unit trusts.

It is common industry practice for net capital gains to only be distributed as part of the 30 June distribution each year. For all other distributions during the financial year, only interest and dividend income is distributed. This is why the 30 June distribution is usually the largest distribution for the financial year.

During the financial year, any net realised capital gains received by the fund are built into the unit price until such time that they are distributed to clients.

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Understanding unit price behaviour following the payment of unit trust distributions

How is a unit price calculated?

Each day, the unit price is calculated by taking the net market value of the assets of the investment option, and dividing it by the number of units on issue within that investment option.

Example 1

For example, if the net market value of assets for an investment option was $5,612,254 and the number of units on issue were 4,875,214, the unit price would be calculated as follows:

$5,612,254/4,875,214 = $1.1512

What is included within the net market value?

  • Income received from the underlying investments, but not yet distributed to clients.
  • Net realised capital gains received from the underlying investments, but not yet distributed to clients.
  • The value of the underlying investments.

  • A deduction for the management fee charged for the investment option.

Why does a unit price drop immediately after a distribution?

As the unit price during a distribution period includes any accrued income and net capital gains that have been received but not yet paid out, when they are paid out at the end of a distribution period, this will have an immediate impact on the unit price.

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Example 2

Using the values in Example 1 above, where the net market value of assets was $5,612,254, we will look at the impact on the unit price if a distribution amount of $456,897 was paid to unit holders. For simplicity, we will assume that the market returned 0% for the first day of the next distribution period. The unit price for the first day of the distribution period would be calculated as follows:

($5,612,254 - $456,897)/4,875,214 = $1.0575

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Example 3

Another way of looking at this is to see what the distribution amount of $456,897 equates to as a cents per unit figure.

$456,897/4,875,214 x 100 = 9.3718 cents per unit

If you take the unit price for the last day of the distribution period (i.e. $1.1512) and subtract from it the cents per unit figure (i.e. 9.3718), you will obtain a figure of $1.0575. As you can see, this unit price is the same as that calculated in Example 2.

$1.1512 - $0.093718 = $1.0575

Consequently, you can now hopefully see that the unit price for the first day of the new distribution period is calculated as follows:

Unit price for the last day of the previous distribution period; less
The amount distributed for that distribution period, i.e. the cents per unit; plus
Any market movements on the first day of the new distribution period

In the above worked examples, we assumed a 0% market movement for simplicity.

The unit price for the first day of the new distribution period will be lower than that for the last day of the previous distribution period where the market movements for the first day of the new distribution period are less than the amount being distributed.

Conversely, the unit price for the first day of the new distribution period will be higher than that for the last day of the previous distribution period where the market movements for the first day of the new distribution period is greater than the amount being distributed.

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Example 4

The cash distribution amount received by the client (which they may then elect to reinvest) is calculated using the following formula:

(Closing unit balance at the end of the distribution period) x (Cents per unit) / 100 = Cash distribution amount

Therefore, for a client with 9,735.1245 units at the end of a distribution period, the cash distribution amount that they would receive, based on a cents per unit amount of 9.3718 would be:

9,735.1245 x 9.3718 / 100 = $912.36

The only instances where a client would not receive the cash distribution amount as calculated above, would be where they were subject to withholding tax on their distribution payment, i.e. TFN withholding, non-resident withholding or under 18 withholding.

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How are the "net earnings" and "return on investment" figures that appear on client statements calculated?

The “net earnings” and “return on investment” calculations that appear on client statements are calculated as follows:

Net earnings / return on investment = Closing Balance - Opening Balance - Inflows + Outflows

In terms of the above formula, transactions considered “inflows” are:

  • Deposits / Investments
  • Switch In
  • Transfer In (ClearView Managed Investments only)
  • Transmission In (ClearView Managed Investments only)
  • Distributions Reinvested (ClearView Managed Investments only)

In terms of the above formula, transactions considered “outflows” are:

  • Redemptions
  • Switch Out
  • Transfer Out (ClearView Managed Investments only)
  • Transmission Out (ClearView Managed Investments only)
  • Distributions Paid (ClearView Managed Investments only)
  • Pension Payment (ClearView Pension Plan only)

Special Rules For The ClearView Managed Investments

  1. Distributions paid with an effective date equal to the Closing Balance date are excluded from the calculation, as this amount is already built into the Closing Balance amount. For example, if the Closing Balance on the statement was as at 30 June 2007, any distributions effective 30 June 2007 would be excluded.
  2. Distributions paid with an effective date equal to the ‘Opening Balance less one day’ are included in the calculation. This is because these amounts were excluded in the calculation for the previous period. As this distribution would not appear on the statement showing the ‘return on investment’ amount, this may prove confusing for investors trying to calculate the figure shown. For example, if the Opening Balance on the statement was as at 1 July 2006, then any distributions effective 30 June 2006 need to be treated as an outflow.

Example of the "net earnings" calculation

NB. The net earnings calculation applies to clients in the ClearView Pension Plan, ClearView Superannuation and Roll-overs, ClearView Rollover Bond and ClearView Savings Bond products.

Assumptions Opening Balance at 1 July 2006 $10,000 A
  Closing Balance at 30 June 2007 $30,000 B
  Deposit $15,000 C
  Switch In $500 D
  Switch Out $500 E
  Redemption $3,000 F

 

Based on the above, the "net earnings" is calculated as follows:

Net earnings = B - A - (C + D) + (E + F)

Net earnings = $30,000 - $10,000 - ($15,000 + $500) + ($3,000 + $500)

= $8,000

Example of the "return on investment" calculation

NB. The return on investment calculation applies to clients in the ClearView Managed Investments only.

Assumptions: Opening Balance at 1 July 2006 $20,000 A
  Closing Balance at 30 June 2007 $45,000 B
  Deposit $15,000 C
  Distribution paid on 30 June 2006 $2,500 D
  Distribution reinvested on 1 July 2006 $2,500 E
  Distribution paid on 30 September 2006 $150 F
  Distribution reinvested on 1 October 2006 $150 G
  Distribution paid on 31 December 2006 $220 H
  Distribution reinvested in 1 January 2007 $220 I
  Distribution paid on 31 March 2007 $404 J
  Distribution reinvested on 1 April 2007 $404 K
  Distribution paid on 30 June 2007 $3,200 L
  Redemption $3,000 M

 

Based on the above, the "return on investment" (ROI) is calculated as follows:

ROI = B - A - (C + E + G + I + K) + (M + D + F + H + J)

ROI = $45,000 - $20,000 - ($15,000 + $2,500 + $150 + $220 + $404) + ($3,000 + $2,500 + $150 + $220 + $404)

= $13,000

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