SMSF Glossary of Terms | Heffron

A

Account-based pension (ABP)

A flexible pension that keeps being paid either until you (and, if chosen, your partner after you) pass away or your super account runs out. Each year, your payment is worked out as a set percentage of how much is in your super pension account.

Accumulation account

When a member joins a superannuation fund, they’ll initially have an accumulation account. Any contributions, rollovers in from other superannuation funds and earnings will be added to this account. When they are eligible to start drawing on their superannuation benefits, lump sums may be deducted from this account. If they decide to start a pension, the starting balance of the pension will be transferred from their accumulation account to a pension account.

Accumulation fund

A fund where member benefits is simply their balance in the fund (ie the sum of all contributions and rollovers, plus earnings on those contributions less any taxes, fees etc). The alternative is a defined benefit fund.

Actuarial certificate

A document prepared by an actuary certifying the proportion of a fund’s income which is exempt from tax because it is paying retirement phase pensions – required when the fund is claiming a tax exemption using the proportionate or actuarial certificate method.

Where a fund is paying a defined benefit pension, the certificate will also provide the actuary’s opinion on the probability that the fund’s assets will be sufficient to continue to pay the pension.

Age pension

Means tested income support paid by the Government to those without enough personal savings to sustain themselves in retirement.

Allocated pension

The first type of pension where the amount payable was based on the pensioner’s account balance, rather than being guaranteed for life or a set period. Replaced by account-based pensions in 2007.

Annuity

Similar to a defined benefit pension in that the recipient receives regular payments, usually guaranteed for life or for a fixed term. May be paid via a superannuation fund but can also be purchased with non-superannuation monies.

Anti-avoidance

Rules in superannuation or tax law designed to stop the use of arrangements circumventing the ordinary operation of the law.

Arm’s length basis

The superannuation law requires that all fund investments are made and maintained on an arm’s length basis. This means that where an arrangement is between a superannuation fund and a related party, the terms and conditions of the transaction must be the same as they would have been had the parties not been related. Commonly referred to as “commercial terms” or “market rates”.

Attorney

In the context of a power of attorney, the person with the power to deal with financial and property matters on behalf of another person.

B

Binding death benefit nomination (BDBN)

A direction from a member to their superannuation fund trustee telling the trustee how the member’s superannuation benefits must be distributed on their death. Providing the nomination meets any requirements of the fund’s trust deed and superannuation law, it is binding on the trustee and the trustee must comply with it.

Bring forward amount

In certain situations, it is possible for a member to “bring forward” their non-concessional contributions cap amounts from future years and use them in the current year. Their bring forward amount is the amount which can be contributed during their bring forward period.

Bring forward period

In certain situations, it is possible for a member to “bring forward” their non-concessional contributions cap amounts from future years and use them in the current year. Their bring forward period is the number of years over which the contributions can be made.

Business real property

A self managed superannuation fund (SMSF) may be permitted to acquire property from a related party provided the property qualifies as business real property. An asset will be business real property if it is a freehold or leasehold interest in real property which is used wholly and exclusively in one or more businesses.

C

Capped defined benefit income stream

A type of pension which is non-commutable and subject to modified rules for transfer balance cap purposes. Capped defined benefit income streams generally include:

• lifetime pensions (whether in place on 30 June 2017 or started on/after 1 July 2017)
• life expectancy pensions in place on 30 June 2017
• market linked pensions in place on 30 June 2017

Cashing

Cashing superannuation means drawing on it by starting a pension, taking a lump sum or some combination of the two.

Cashing restrictions

If a member becomes eligible to access their super, but hasn’t met a full condition of release, there will be limits on how they can withdraw it.

They might be able to take only part of their super, not all of it, or there may be rules about when or how they can take the money. These limits are called cashing restrictions.

Each type of condition of release comes with its own set of cashing restrictions.

Catch up contributions

Where a member does not use all of their concessional contributions cap in a particular year, the unused amount carries forward. Utilising these carried forward amounts is referred to as a catchup contribution.

CGT cap contribution

A personal superannuation contribution which the member has elected to exclude from their non-concessional contributions cap and have it counted towards their CGT cap instead. The member must have sold an asset which qualifies for the CGT small business 15 year exemption or $500,000 retirement exemption.

Clearing house

An electronic gateway allowing an employer to make contributions for all of their employees in a single payment. The clearing house will make payment of the required amount to the designated fund for each employee. Small businesses have access to the ATO’s Small Business Clearing House. Other businesses must use a commercial superannuation clearing house if they wish to use this type of facility.

Collectables

Collectables are assets such as artworks, jewellery, wine or boats. There are specific rules about what self managed superannuation funds can and can’t do when they own collectables.

Commonwealth Seniors Health Card (CSHC)

A means tested concession card allowing recipients to access subsidised health care and other discounts.

Commutable

A type of income stream where all or part is able to be converted to a lump sum.

Commutation

The process by which a member exercises their right to exchange some or all of their entitlement to receive future superannuation income stream benefits for an entitlement to be paid a lump sum. A commutation can be a full commutation or a partial commutation.

Company title

Where a company owns land (and any buildings erected on the land) and the shareholders of the company are entitled to exclusive occupation of a portion of the land and buildings (eg a particular unit or floor area). Company title arrangements were a common way to hold interests in multi-storey properties prior to the introduction of strata-title.

Compassionate grounds

A special type of condition of release, allowing a member to withdraw some of their superannuation benefits in limited circumstances (eg a lump sum to cover medical treatment for a chronic or life threatening illness where treatment is not readily available through the public health system).

Complying fund

In the context of a self managed superannuation fund, a fund which has elected to be regulated by the ATO and has met the rules to qualify for concessional tax treatment.

Compulsory cashing

When superannuation must be paid out as a lump sum or used to start a pension. A member’s death is currently the only situation requiring compulsory cashing of a member’s superannuation.

Compulsory superannuation

The superannuation contributions employers are required to make by law. This includes both superannuation guarantee (SG) contributions and contributions required by an industrial award or agreement. In the superannuation legislation, these contributions are called mandated contributions.

Concessional contribution

Any contribution which is included in the assessable income of a superannuation fund. Concessional contributions are counted towards the member’s concessional contributions cap, unless an exception applies. Examples include employer contributions and personal contributions for which a tax deduction has been claimed.

Condition of release

The criteria a member must meet to take their money out of the superannuation system. Meeting a full condition of release means the member has complete flexibility to start a pension or take their benefits out as a lump sum or some combination of the two. Full conditions of release include retiring or turning 65. Some conditions of release have cashing restrictions.

Constitution

The rule book setting out how the company can operate. It governs all activities of the company (for example, how to appoint or remove directors, how to issue or transfer shares, how decisions are made etc).

Contribution

Not specifically defined in tax or superannuation law, but generally refers to the addition of capital to a superannuation fund. Rollovers from one superannuation fund to another are not contributions.

Contribution cap

A limit on the amount of contributions which can be made with concessional tax treatment. Additional taxes are imposed on members where a cap is exceeded (called an excess contribution).

Contribution splitting

Where a spouse elects to transfer (ie split) some of their contributions to their spouse. Refer to Spouse contribution splitting for further details.

Controlled company

See “Related company”.

Controlled trust

See “Related trust”.

Covenants

Standards of behaviour expected of a superannuation fund trustee when undertaking any activity in relation to the fund (eg to act honestly).

Custodian

Some superannuation fund investments are owned by a custodian rather than the fund trustee. The fund trustee retains beneficial ownership of the investments while the custodian holds the legal title as the fund’s agent.

D

Death benefit

Generally a benefit paid from superannuation after the death of a member.

Death benefit pension

A pension paid because of the death of a member. A death benefit pension can result from the continuation of an existing pension (ie a reversionary pension) or a new pension started from the balance of a non-reversionary pension account or an accumulation account.

Deeming

A method used by the Government to work out the income earned from certain assets for the purpose of determining eligibility for Government benefits such as the age pension and the Commonwealth Seniors Health Card. It assumes these assets earn a set rate of income, no matter what they really earn.

Default fund

Employers must nominate a default superannuation fund that they will pay their employees’ superannuation contributions into if an employee doesn’t choose a fund and doesn’t have a stapled fund. A default fund must be a complying fund, be registered with APRA and offer a MySuper product. Also called a “chosen fund”.

Deferred income stream

An income stream where payments are delayed until a set amount of time after purchase.

Defined benefit

Where the benefit paid from a superannuation fund is determined by a formula instead of being based on the contributions made to the fund and earnings on the fund’s investments.

Defined benefit fund

A fund where at least some benefits are defined benefits.

Defined benefit pension

Where the member receives regular payments, usually guaranteed for life or for a fixed term, but the pension is not paid from an identifiable account balance in the member’s name. Examples include lifetime pensions, life expectancy pensions and flexi pensions.

Dependant

There are two definitions of dependant. The first is in the superannuation law (called a SIS dependant) and it determines to whom a member’s superannuation benefits can be paid on death. The second is the tax definition (called a death benefits dependant) which dictates how such benefits are taxed. A spouse will be a dependant under both definitions. Whereas children are generally always SIS dependants but only death benefits dependants if they are under 18 or financially dependent.

Director ID

A director identification number – a unique number required to be held by all company directors.

Division 293 tax

An extra 15% tax on the concessional contributions of high income earners.

Downsizer contribution

A special type of contribution, with its own contribution cap, able to be made when a member sells their home. There are other eligibility rules including a minimum age.

E

Electronic service address (ESA)

Required by a self managed superannuation fund that needs to receive or send SuperStream data (eg a member is wishing to rollover benefits into or out of the fund or an employer is required to make their contributions via SuperStream). Is a special internet address – an email address is not an ESA. The fund’s administrator will generally provide the trustees with an ESA.

Eligible service date

The date the member joined the fund or the day they started employment with an employer making contributions to the fund (whichever is earlier). If a member has rolled in benefits from another fund with an earlier eligible service date, the member’s eligible service date will be that earlier date.

Eligible service period

In the context of a superannuation benefit, the period from the member’s eligible service date to the relevant end date for that superannuation benefit. For example, in the case of a disability superannuation benefit, the relevant end date will be the date the member last worked.

Employer sponsor

An employer who contributes to a superannuation fund for the benefit of an employee.

Enduring Power of Attorney (EPOA)

A type of power of attorney which continues even when the donor becomes legally incapacitated.

Entitled recipient

A person entitled to be paid a death benefit in the form of an income stream (eg spouse, minor children).

Estate

A trust established on death comprising the personal assets and liabilities of the deceased.

Excess contribution

Where a member’s contributions are more than the relevant contribution cap.

Excess Transfer Balance Tax

The tax payable where a member exceeds their transfer balance cap (TBC).

Executor

The person or persons nominated in an individual’s Will who administer(s) the terms of the Will.

Exempt Current Pension Income (ECPI)

The investment income earned by a complying superannuation fund when its assets are partly or fully supporting retirement phase pensions. Exempt current pension income is exempt from tax.

F

First Home Super Saver (FHSS) Scheme

Allows members to save money inside superannuation and then release (ie withdraw) monies for the purpose of purchasing their first home.

Flexi pension

A type of lifetime pension, but unlike “normal” lifetime pensions, it is able to be commuted to a lump sum.

Full commutation

Where a member consciously exercises their right to exchange their full entitlement to receive future superannuation income stream benefits for an entitlement to be paid a lump sum. Once the trustee agrees to the member’s request for the commutation, the income stream will cease.

G

Gainfully employed

A member will be gainfully employed if they are employed or self employed for gain or reward in any business, trade, profession, occupation or employment.

General power of attorney

A type of power of attorney which terminates automatically when the donor loses legal capacity.

Governing rules

The trust deed of the superannuation fund, together with any other rules governing the establishment and operation of the fund.

Government co-contribution

A payment made by the Government into a superannuation fund as an incentive to encourage low income earners to make their own contributions to superannuation.

H

I

Illegal early access or illegal early release

Taking money out of a superannuation fund in a way that’s not allowed – either the member hasn’t met any condition of release (so the money can’t be taken out at all) or the member has met a condition of release that has cashing restrictions and those conditions haven’t been followed. The member will pay extra tax, the trustee might be penalised and the fund might even be made non-complying.

Industry fund

A type of superannuation fund historically set up by unions or industry groups. They are often called “not for profit” funds.

In-house asset

Superannuation funds are generally not permitted to hold more than 5% of their assets in in-house assets. Unless an exception applies, in-house assets include loans to related parties, investments in related parties and assets leased to related parties.

In specie

A Latin phrase meaning “in its actual form”. For example, an in specie contribution is where a contribution is made by transferring an asset into the fund, rather than cash. Only certain types of assets can be transferred into a superannuation fund in specie.

Refer to 4.4 Acquisitions from related parties for further details.

An in specie benefit payment is where a member’s benefits are paid by transferring a fund asset to the member, rather than cash. Note, pension payments must be paid in cash, not in specie.

Insurance only policy

A special type of superannuation account where the member’s only potential benefit is insurance proceeds on death or disablement. That is, the member does not have an account balance in the fund unless an insurance benefit is paid.

Intestacy/intestate

Where a person dies without a Will or the distribution of assets under the Will is invalid.

Investment strategy

A plan for making, holding and disposing of a superannuation fund’s assets in a way which the trustee believes will achieve the member’s retirement objectives.

J

Joint tenants

A way of owning property with another party where, if one of the joint tenants dies, the property will automatically pass to the surviving joint tenant. Where a superannuation fund is to own property with another party, it should be owned as tenants in common, rather than as joint tenants.

K

L

Legal Personal Representative (LPR)

In estate planning terms, this is usually the executor appointed under a Will or an administrator detailed in Letters of Administration. However the concept of a legal personal representative is also defined in legislation for various purposes. For example, in the case of the superannuation law, the term legal personal representative also includes “the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person”.

Legacy pensions

An informal term used to describe a group of pensions which are generally no longer able to be commenced in self managed superannuation funds. Legacy pensions include market linked pensions (also known as term allocated pensions), lifetime pensions, life expectancy pensions and flexi pensions.

Letters of Administration

An official document granted by the court to allow an estate to be administered where the person has died intestate or partially intestate, the Will is invalid, there is no executor appointed or validly appointed or there is an executor appointed but they are unwilling to act.

Lifetime pension

A type of non-commutable pension where the trustee promises to pay the member (or their spouse if applicable) a pension payment (either a fixed amount or increasing each year) for their lifetime.

Life expectancy pension

A type of non-commutable pension where the trustee promises to pay the member (or their spouse if applicable) a pension payment (either a fixed amount or increasing each year) for a fixed number of years set at commencement.

Limited recourse borrowing arrangement (LRBA)

A special type of borrowing allowed by a superannuation fund. Called “limited recourse” because the lender’s recourse should the fund default on the loan is limited to the asset bought under the arrangement.

Low income superannuation tax offset (LISTO)

A payment made by the Government into a superannuation fund to compensate low-income earners for the 15% tax payable by the superannuation fund on their concessional contributions (including employer and personal deductible contributions).

M

Mandated contribution

Contributions an employer is required to make by law, for example, to comply with the superannuation guarantee requirements or contributions required under an award. A superannuation fund may accept mandated contributions for a member at any time, regardless of the member’s age. Salary sacrifice contributions are not mandated contributions.

Marginal tax rate

The amount of additional tax paid for each additional dollar of income earned.

Market linked pension (MLP)

A type of non-commutable pension which is payable for a fixed term. The amount of pension payment payable each year will rise and fall depending on the size of the member’s account balance. Also called a term allocated pension.

Maximum pension limit

Pension payments in any year from a transition to retirement income stream must not exceed a maximum level.

Means tested

A way of determining whether an individual or household is eligible to receive some sort of Government benefit or payment. For example, the full age pension is not available to everyone. Instead, eligibility is determined using two means tests – an income test and an assets test.

Member contribution

See “Personal contribution”.

Member deductible contribution

A contribution made by a member and claimed as a tax deduction.

Minimum pension limit

Pension payments from account-based pensions and transition to retirement income streams must be at least a minimum amount each year.

MySuper

A particular account or product that superannuation funds (mainly industry and retail funds) can choose to offer. There are extra rules which MySuper products must follow around fees, features, investment options and insurance. Funds offer MySuper products because these are the only superannuation fund products that are allowed to accept superannuation contributions for members who haven’t specifically chosen their superannuation fund.

N

Nomination of preferred beneficiary

A written notice indicating a member’s preference as to how their superannuation benefit should be distributed on their death. Such a nomination is not binding on the trustee - it is simply an expression of wishes.

Non arm’s length income (NALI)

The income of a superannuation fund which is taxed at 45% rather than the usual 15% rate. Applicable where a fund receives income or profit from a transaction that is more than would be expected in an arm’s length situation.

Non-commutable

A type of income stream which is generally not able to be converted to a lump sum.

Non-complying fund

A fund which has been issued with a notice of non-compliance for failing to comply with the superannuation rules. Non-complying funds are not eligible for concessional tax treatment.

Non-concessional contribution

A type of contribution which is not included in the assessable income of a superannuation fund. Non-concessional contributions are counted towards the member’s non-concessional contributions cap, unless an exception applies. Examples include personal contributions for which a tax deduction is not claimed and spouse contributions.

O

P

Partial commutation

Where a member exercises their right to exchange something less than their full entitlement to receive future superannuation income stream benefits for an entitlement to be paid a lump sum. As there is still an obligation to continue to pay superannuation income stream benefits, a partial commutation does not result in the cessation of the superannuation income stream.

Pension

See “Superannuation income stream”.

Pension account

An account from which a pension is paid.

Pension payment

See “Superannuation income stream benefit”.

Permanent incapacity

Where a member is unlikely, because of ill health (whether physical or mental), to engage in gainful employment for which they are reasonably qualified by education, training or experience.

Personal contribution

A contribution made by a member.

Personal injury contribution

A contribution made where a member has suffered a personal injury, received a structured settlement or court ordered payment and elected to have the contribution excluded from their non-concessional contributions cap.

Preservation age

Access to superannuation benefits is generally restricted to members who have reached their preservation age. A member’s preservation age ranges from age 55 to age 60, depending on their date of birth.

Preserved benefits

The benefits which must remain in a superannuation fund and can’t be paid out to a member until a condition of release is met.

Pooled superannuation trust

A unit trust in which only assets of superannuation funds, approved deposit funds and other pooled superannuation trusts can be invested. Where a superannuation fund invests in a pooled superannuation trust, any gains or losses realised on the disposal of the units are exempt for tax purposes.

Power of Attorney

An official document which allows one person (called the attorney) to act on behalf of another (the principal or donor). There are different powers of attorney and the powers of each are detailed in the document itself.

Pre 1999 unit trust

An informal term used to describe a unit trust in which a superannuation fund purchased units on or before 11 August 1999. Such investments are excluded from being an in-house asset provided they meet certain rules.

Probate

The court’s official recognition that a Will is legally valid and the executor is authorised to deal with the estate.

Proportioning rule

Means any superannuation benefit is taken to include tax free and taxable components in the same proportions as those components are represented in the member’s superannuation interest from which the payment is made. The proportioning rule means a member cannot choose whether their benefit payment includes tax free or taxable component.

Public sector fund

A type of superannuation fund for government employees. Membership is only open to public servants or those who have been public servants in the past and have left their superannuation entitlements in their public sector scheme rather than transferring to a retail, industry or other superannuation fund. Some public sector funds are unfunded schemes.

Q

R

Real property

Tangible and immovable property such as land, any structures intended to be permanently affixed to the land such as a house or other building, and any rights inextricably attached to the land which cannot be dealt with separately.

Registered

On Super Fund Lookup, self managed superannuation funds with a status of “Registered” are eligible to receive contributions and rollovers from other funds.

Regulation details removed

On Super Fund Lookup, self managed superannuation funds with this status have outstanding annual returns to be lodged with the ATO. Contributions or rollovers may not be able to be made to funds with this status.

Regulation details withheld

On Super Fund Lookup, this status is temporary and may mean the ATO is reviewing the fund’s details. Contributions or rollovers may not be able to be made to funds with this status.

Regulator

In the context of superannuation funds, the Government body responsible for administering the relevant laws. The ATO is responsible for regulating self managed superannuation funds (SMSFs). APRA is responsible for regulating all other superannuation funds.

Related company

A company controlled by related parties. A superannuation fund’s investment in a related company is caught as an in-house asset (unless an exemption applies). Another name for a related company is a controlled company.

Related party

The superannuation law includes restrictions on transactions involving related parties. The related party definition is complicated but includes the members of a superannuation fund, their relatives and partners, and companies and trusts which are controlled by related parties.

Related trust

A trust controlled by related parties. A superannuation fund’s investment in a related trust is caught as an in-house asset (unless an exemption applies). Another name for a related trust is a controlled trust.

Relative

There are two specifically prescribed definitions of relative in the superannuation law – one for the purpose of the investment rules, and one for the purpose of the SMSF definition.

It’s important not to extend beyond this prescribed list and include all individuals that would ordinarily be considered a relative in a family context.

Release authority

A document the ATO gives to a superannuation fund when a member has excess contributions, a Division 293 tax assessment or a First Home Super Saver (FHSS) Scheme determination and amounts are to be released from superannuation. When a fund receives a release authority, the fund is permitted to release an amount from the member’s superannuation benefits according to the instructions and timeframes in the release authority.

Reportable employer superannuation contributions (RESC)

Any contribution made by an employer on behalf of an individual where the individual has the capacity to influence the size of the contribution or the way it is made (eg salary sacrifice contributions).

Restricted non-preserved benefits

The benefits which must remain in a superannuation fund and can’t be paid out to a member until a condition of release is met. In addition to the “usual” conditions of release, restricted non-preserved benefits may also be accessed if the member leaves employment with an employer who has contributed to the fund on the member’s behalf.

Retail fund

A type of superannuation fund, usually run by banks or investment companies. Anyone can join one. They often have a wide range of investment options and may be recommended by financial advisers who may charge a fee for their advice.

Retirement

There are two definitions of retirement in the superannuation law. These definitions don’t have official names (both are just called retirement) but are commonly referred to as:

• First definition – Permanent retirement after reaching preservation age.
•  Second definition – Ceasing gainful employment after age 60.

Retirement phase pension

Retirement phase pensions are the only types of pensions which:

• are tested against the transfer balance cap, and
•  eligible to generate exempt current pension income for the fund.

The types of pensions which qualify as retirement phase pensions include:

• account-based pensions
• retirement phase transition to retirement income streams (retirement phase TRISs)
•  allocated pensions
•  market linked pensions (also known as term allocated pensions)
• lifetime pensions
•  life expectancy pensions
• flexi pensions
• deferred income streams (a new type of pension to be available in the future, only qualifies as a “retirement phase” pension once the individual has met certain conditions of release including retirement, reaching age 65)

Retirement phase TRIS

A transition to retirement income stream (TRIS) will qualify as a retirement phase TRIS if the pensioner:

• has reached age 65,
• has reached their preservation age and satisfied either of the two limbs of the retirement definition,
• is terminally ill, or
• is permanently incapacitated.

For individuals reaching age 65, a TRIS will automatically move into retirement phase and qualify as a retirement phase TRIS on the individual’s 65th birthday. For individuals retiring or being declared terminally ill or permanently incapacitated, the TRIS will not move into retirement phase and qualify as a retirement phase TRIS until the individual notifies the fund trustee of that fact.

A TRIS that has reverted, or will revert, to another beneficiary will automatically be a retirement phase TRIS immediately on the death of the original pensioner.

Retirement savings account (RSA)

An account offered by banks, building societies, credit unions, life insurance companies and prescribed financial institutions. It is used for retirement savings and is similar to a superannuation fund.

Reversionary pension

A pension that continues on the death of the original pensioner with the entitlement to the pension passing to another person (called the reversionary pensioner), because the terms and conditions of the pension expressly provide for reversion (and these terms and conditions were in place prior to the original pensioner’s death), as opposed to the trustee exercising a power or discretion to determine to pay a benefit.

In contrast, a pension is non-reversionary (and will cease on the pensioner’s death) if the fund trustee has the power or discretion to determine:

• to whom the death benefit is paid,
• the form in which the death benefit will be paid (eg lump sum death benefit or pension), or
• the amount of the death benefit paid.

Reversionary pensioner

The person nominated by the original pensioner to continue to automatically receive the pension payments on the original pensioner’s death without the trustee’s approval.

Roll back

An informal term used to describe the process of commuting a pension (fully or partially) and transferring the proceeds to an accumulation account within the same superannuation fund.

Rollover

When a member transfers some or all of their superannuation benefits from one fund to another fund.

S

Salary sacrifice

A formal arrangement between an employee and their employer where the employee agrees to forgo part of their salary or wages in return for benefits of a similar value.

Salary sacrifice contribution

A contribution made by an employer under salary sacrifice agreement.

Self managed superannuation fund (SMSF)

A type of superannuation fund where one or more individuals choose to set up their own fund with themselves as the only members.

Severe financial hardship

A special type of condition of release, allowing a member to withdraw some of their superannuation benefits. The amount which can be accessed and the conditions to be satisfied depend on the member’s age.

Small APRA fund (SAF)

A type of superannuation which is very similar to a self managed superannuation fund. However, rather than the members being the trustee, a small APRA fund has a professional trustee.

SMSF definition

There are different rules to satisfy to qualify as a self managed superannuation fund, depending on whether the fund has a single member or two to six members. These rules are called the SMSF definition.

Spouse

Under the superannuation and tax law, spouse includes legally married and de facto spouses, regardless of whether the spouse is a same sex partner.

Sole purpose test

The cornerstone of the superannuation law. Generally requires superannuation funds be maintained only for the purpose of providing benefits to members on their retirement, or for their dependants, in the case of members who die before retirement.

Stapled fund

An existing superannuation account which is linked, or “stapled”, to an individual employee. If an individual has only one superannuation account, that will be their stapled fund. If an individual has multiple superannuation accounts, the ATO will determine which account is their stapled fund.

If an individual is allowed to choose where their superannuation contributions are paid but doesn’t when starting a new job, the employer must contribute to the employee’s stapled fund if they have one.

Superannuation

A way of saving for retirement where individuals, their employers and sometimes the Government put money into a structure called a superannuation fund.

Superannuation benefit

A payment from a superannuation fund.

Superannuation death benefit

See “Death benefit”.

Superannuation fund

A special type of trust, specifically setup to save for retirement.

Superannuation lump sum

A payment from a superannuation fund to a member and the payment is not a pension payment.

Superannuation income stream

Where a superannuation fund trustee has a liability to pay to a member a series of periodic payments that relate to each other over an identifiable period of time. Also commonly called a pension.

Superannuation income stream benefit

A payment from a superannuation income stream. Another name for a pension payment.

Superannuation guarantee contribution

A contribution made to satisfy an employer’s obligations under the superannuation guarantee charge system.

SuperStream

An electronic gateway used to streamline the process of making superannuation contributions for employees and rolling over benefits between superannuation funds. It requires payments and the associated data to be sent and received electronically.

In the case of self managed superannuation funds, the electronic transfer of data is facilitated using an electronic service address, and the electronic transfer of monies is generally facilitated using an electronic funds transfer.

T

Taxable component

The amount of a member’s superannuation benefits less their tax free component. Generally comes about through employer contributions, personal contributions which have been claimed as a tax deduction and investment earnings.

Whether tax is ultimately paid by a member on their taxable component will depend on how old they are when they receive it and how it’s received (ie lump sum or pension).

Taxable proportion

The member’s taxable component as a proportion of their account balance.

Tax free component

The amount of a member’s superannuation benefits which is paid out tax free no matter who receives it and how old they are. Generally comes about through non-concessional contributions.

Tax free proportion

The member’s tax free component as a proportion of their account balance.

Tax free threshold

The amount of income which can be earned by an individual in a financial year without them paying tax.

Temporary incapacity

Where a member has temporarily ceased work because of physical or mental ill-health. Suffering from temporary incapacity does not generally allow a member to access their accrued superannuation benefits. Rather, the temporary incapacity condition of release is the mechanism which allows a trustee to pay income protection insurance benefits to a member.

Term allocated pension (TAP)

See “Market linked pension (MLP)”.

Terminal medical condition

Where two registered medical practitioners (one being a specialist practising in an area related to the member’s injury or illness) have certified that the member suffers from an illness, or has incurred an injury, that is likely to result in their death within the next 24 months.

Tenants in common

A way of owning property with another party where each party has a defined share of the asset which they can dispose of as they wish. If one of the tenants in common dies, the other tenant(s) in common will still only have their share(s) as per the original agreement. Where a superannuation fund is to own property with another party, it should be owned as tenants in common (and not as joint tenants)

Testamentary Trust

A trust which comes into operation on the death of an individual under the terms set out in the individual’s Will.

Third party

An informal term used to describe a person or entity which is not a related party.

Total superannuation balance (TSB)

A method for valuing a member’s total superannuation interests as at a given date and used as an eligibility threshold for a number of superannuation concessions including non-concessional contributions caps and using the segregated assets method to determine a fund’s claim for exempt current pension income.

Transfer balance account (TBA)

A method of tracking transactions that affect a member’s transfer balance cap (TBC). The balance of a member’s transfer balance account represents the cumulative total of all “events” that affect their TBC and determines whether they have exceeded their TBC at the end of any given day.

Transfer balance account report (TBAR)

A report used to advise the ATO of the occurrence of an “event” which impacts a member’s transfer balance account. This information is used to adjust the member’s transfer balance account so the ATO can administer the transfer balance cap provisions.

TBAR due dates are detailed in TBAR lodgement dates.

Transfer balance cap (TBC)

A cap on the total amount of accumulated superannuation an individual can transfer into retirement phase pension accounts.

Transition to retirement income stream (TRIS) or transition to retirement pension

A form of account-based pension commenced by members who have reached their preservation age but have not yet retired, reached age 65 or satisfied another condition of release allowing them to access their superannuation benefits in lump sum form.

Trust

A legal structure where one party (the trustee) owns and manages assets for the benefit of another (the beneficiaries). There are many different types of trusts including bare trusts, discretionary trusts, fixed trusts and unit trusts.

Trust deed

In the context of a superannuation fund, a legal document setting out the rules for establishing and operating the fund. It includes such things as the fund’s objectives, who can be a trustee and member, any restrictions on fund investments, when benefits can be paid and in what form. Commonly referred to as the fund’s “rule book”.

Trustee

In the context of a superannuation fund, an individual or company that holds and administers fund property or assets for the benefit of the fund members.

U

Unfunded scheme

A type of public sector superannuation fund where the Government (or other body) whose employees belong to the fund has not made regular contributions to it during the employee’s working life. Instead, an amount is paid to the employee from the Government body’s normal revenue when a benefit becomes payable.

Unrelated trust

A trust that is not a related trust.

Unrestricted non-preserved benefits

The benefits which a member is able to access at any time.

Untaxed element

The portion of a superannuation benefit on which higher rates of tax are paid. A superannuation benefit may have an untaxed element where:

• it is paid from an untaxed fund (ie a fund which has not paid any tax on contributions or earnings – usually public sector funds), or
• it is a death benefit paid from a taxed (ie “normal”) superannuation fund to someone who was not a death benefit dependant of the deceased, the deceased was under 65 when they died, the trustee has claimed a tax deduction for the cost of life insurance cover for the deceased and the policy is still in effect at the time of death.

V

W

Will

A legal document directing who is to receive assets from an estate and on what terms.

Work test

To satisfy the work test, a member needs to be gainfully employed for at least 40 hours within no more than 30 consecutive days in a financial year. Historically, the work test needed to be met for the trustee of a superannuation fund to accept contributions for older members. However effective 1 July 2022, the work test now only needs to be met if a member aged 67 to 75 makes a personal contribution and they wish to claim a tax deduction for that contribution.