Posted on 18 October '12 by , under General News.
Experienced SME owners can reduce their outgoing costs by restructuring their wage programs to include the Transition to Retirement Pension.
The Income Tax Act allows for eligible SME owners to reduce wages and leave extra cashflow in the business through a mechanism called the Transition to Retirement Pension. This enables a portion of income to be earned from super,with considerable tax benefits.
SME owners over 55 can receive a highly tax advantaged pension from their super fund. Once over 60, the pension becomes completely tax-free. This means that eligible owners can earn a portion of their income through their super fund while still working. One benefit will be the reduction of wage bills to the SME, without compromising their take home income. One of the major benefit of SME owners placing themselves on some form of pension in a super fund is that the income from the assets that support a pension becomes tax-free in the super fund it iself.
For example, if a pension is supported by assets of $200,000 and the fund’s income on those assets is, say, $10,000, normally the tax on that income is $1,500 i.e.15 percent. By simply receiving the minimum pension amount allowable SME owners can save themselves $1,500 tax within the super fund.