Saturday 22 June 2013

Rolled over and reallocated DS1s superannuation

It's a bit hard keeping track of the never-ending changes to superannuation in Australia, especially less 'mainstream' aspects such as the rules around the government superannuation co-contribution as it relates to children's superannuation. But it appears that nowadays it is extremely difficult to meet the requirements for the co-contribution if you are under 18. Aside from the normal rules (a 1:2 government co-contribution of up $500 is available to those individuals that make an undeducted contribution into an eligible superannuation account or RSA, and earn less than $31,920 - those earning up to $46,920 total income are entitled to a reduced co-contribution amount) the 10% 'eligible income' test apparently makes it very difficult for students under 18 to qualify.

While DS1 was doing a paper round he could easily meet this 'eligible income' rule, but these days a large fraction of his income comes from his investments, and only a relatively small amount (~$1000 pa) from occasionally 'working' as a self-employed busker. I'm not sure exactly how the rules get applied to his busking income (although he has an ABN and declared the busking income in his tax return, it may be treated as 'hobby income' and not count (?), and while the investment income from his paper-round money comes from a separate investment account, so gets treated as 'earned income' and avoids the sky-high 'unearned income' child tax rates, it may also not count towards the 10% eligible income test...). I had expected that the $1000 busking income would have satisfied the 'eligible income' test, but that apparently wasn't so - despite making a $500 undeducted contribution into his RSA the previous financial year,  the amount of government co-contribution eventually deposited into his RSA (a few weeks after his tax return was lodged) was only $1!

Since it appears that he can't qualify for the co-contribution, there's no point keeping his fixed interest RSA account open any longer - so I lodged a 'rollover' form with the manager of his 'child' superannuation account, Macquarie Group, to transfer the balance of his AMP RSA into his superannuation account at Macquarie. I 'post-dated' the rollover form a couple of weeks, just in case the interest due at the end of June is calculated on the minimum balance (I didn't want to risk him getting no interest on his RSA for the past six months!), and at the same time I also sent in an 'investment reallocation form' to switch around the investment mix of his Macquarie superannuation account.

His asset allocation at Macquarie had included about 1/3 in property securities, bonds and fixed interest. The new allocation reduces the allocation to these sectors and is weighted more heavily in Australian stocks, small companies, and international equities. With an extremely long investment time-frame of 50+ years until he reaches retirement age, a high-risk, high-return asset allocation seems most appropriate. The recent sell-off in the world equities markets might prove an apportune time to be rolling over his fixed-interest superannuation balance into a more high-risk environment to take advantage of a return to 'normal' rates of investment return in the coming decades. Once he reaches 18 years of age, I'll rollover his superannuation into our SMSF.

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