Superannuation, the ultimate government cash cow?

[Dona Ferentes]

To be honest, I am bemused how a simple concept of saving for one's retirement in a concessionally taxed environment has become complicated through political debauchery starting with allowing people for a limited period to contribute $1m non-concessional, passing legislation not taxing earnings or pension payments in retirement mode, to trying to reign in the cost of those concessions via introducing Div 293 on higher income earners, introduction of balance caps and now the possibility of taxing amounts of $3m.

thanks your deep dives, Belli.
Social engineering at its worst.

 

[Belli]

It's still possible that the non-indexing of the $ 3 mill limit could get knocked on the head in the senate.
Anyway , the Libs are not going to be out of power , forever. They sure won't let it stand .
How many elections to go ?......Three ? maybe only two.

Yes. However, in the meantime, should the legislation pass as is (and I agree there will be strong views and discussions on the matter) for those who will be adversely impacted, even if the legislation is reversed by a later Government, I doubt the reversal will be retrospective. So, for a time, a number could be right royally shafted for want of a better phrase.

And DB pensions are generally already taxed at marginal rates too albeit it with a rebate being applied. And they are adjusted according to CPI so there is seemingly no escape. Actually because the pension is taxed, for someone who receives $80k pa DB, they are financially worse off than those who receive $80k pa tax-free from super.

With DB pensions it isn't only former Federal public servants either. There are former state public servants, ADF personal, and even former employees of some private enterprises, e.g. banks. It's why I think there will be more than the 80,000 as stated by the Government who will be affected. I think the numbers presented by Government have been based only on superannuation funds and not the wider aspects of superannuation income sources. I suspect it has been generally ignored as there would be little public sympathy for those who receive a DB pension. Nevertheless, I do feel they should be treated fairly and to my mind that does not seem to be the case under some scenarios. However, that is only my view. I'm not making any judgement about the source of the DB pension and whether it's fair or not. It was a condition of their employment contract.

 

[divs4ever]

To be honest, I am bemused how a simple concept of saving for one's retirement in a concessionally taxed environment has become complicated through political debauchery starting with allowing people for a limited period to contribute $1m non-concessional, passing legislation not taxing earnings or pension payments in retirement mode, to trying to reign in the cost of those concessions via introducing Div 293 on higher income earners, introduction of balance caps and now the possibility of taxing amounts of $3m.

'bemused' wasn't the word that sprung to my mind . but knowing the way bureaucracy works ... neither did 'surprised'

the government have this inane tendency to build 'empires' underneath them to promote their own importance
and sadly Super is one of those areas most workers/income-earners care about , so more eyes are watching ( and rolling )

 

[trmcom]

i thought 5 years ago that Super kept the poor poor and the Rich Rich, now 5 years later l know that it is!

 

[sptrawler]

A good article on inheritance tax, as it's applied in the U.K, just so we have a reference to look back on if it is suggested. It looks complicated, but would fit in well with our social security system regarding the pension.

How to get around the £2m inheritance tax rule

Telegraph Money explains what to do to avoid an unexpected IHT bill

www.telegraph.co.uk

 

[Dona Ferentes]

however, in the meantime, should the legislation pass as is (and I agree there will be strong views and discussions on the matter) for those who will be adversely impacted, even if the legislation is reversed by a later Government, I doubt the reversal will be retrospective. So, for a time, a number could be right royally shafted for want of a better phrase.

shafted... most likely
confused ... absolutely

judging by comments in the FirstLinks article, and elsewhere, people are floundering in their attempts to understand the implications:

Meg on SMSFs: negative earnings and the $3 million tax

There’s no good news in the draft legislation for 'Division 296 tax', the new name for the tax on super over $3 million. These worked examples show the flaw in taxing unrealised gains. And stop calling it a 30% tax.

www.firstlinks.com.au

 

[Belli]

confused ... absolutely

Completely understandable. It's certainly an additional complexity and a potentially large financial penalty. I do appreciate why many SMSF members are worried. Not really an issue for industry funds as I strongly doubt there would be many, if any, which would be in this situation as the big money is in SMSFs.

I believe one of the issues is various Governments in the past didn't take account of human nature or even care about it. Offer a low taxed environment leading to a tax-free one in retirement and of course people who can will take advantage of that. Especially since, originally, there was no limit as such on how much one could have in that concessionally taxed environment. The only real restraint was the concessional and non-concessional amounts for each member. The top limits for superannuation was always skewed to the relatively well off in any event and that is still the case in my opinion. People on the median wage don't have $27,500 or a spare $110,000 lying around each and every year.

Although the legislation is yet to be presented to Parliament, and probably will not be passed in its current form, on a personal basis, I am happy in a way to no longer having anything to do with a SMSF although I did take action to wind up the fund for different reasons.

I have no evidence for this but I would not be surprised if a number will restrict their future superannuation contributions to concessional only.

 

[Dona Ferentes]

this comment got my attention:

The proposed tax should make anyone considering buying into high risk, growth stocks (exploration, biotech, ,technology) tread carefully, Maybe reconsider. A biotech our SMSF holds has gone from 1.6c (2019) to 60.5c (2021) to 4.1c (today). A disaster if the new tax had been applied

It seems that a consequence, foreseen or otherwise, is to limit CG down the track being "lost" in the low tax Super environment . Looking at the Top 20 of IPOs, apart from institutional holdings, a significant number of "associated entities" of Directors amd Senior Management are SMSF holdings. Some of these shares they got at 0.2c or 1c or whatever, and then listing at, say, 20c can produce unrealised gains in orders of magnitude. Successful once listed, and the gains can be even bigger.

I know of one director in a small cap who has 2+ million shares at $5, in his SMSF. He got them 10 years ago for a pittance. He's only 50 y.o. ... no wonder there's selling pressure on that stock.

 

[Belli]

I know of one director in a small cap who has 2+ million shares at $5, in his SMSF. He got them 10 years ago for a pittance. He's only 50 y.o. ... no wonder there's selling pressure on that stock.

If he is 50 yo and the legislation passes as is, I reckon he is still stuffed even if he sells now as he won't meet the conditions of release for superannuation.

 

[Dona Ferentes]

If he is 50 yo and the legislation passes as is, I reckon he is still stuffed even if he sells now as he won't meet the conditions of release for superannuation.

he can sell them inside the fund, for the understood tax rate. For him a better outcome; for the listed stock, sustained selling pressure.

gotta like markets

 

[Belli]

he can sell them inside the fund, for the understood tax rate. For him a better outcome; for the listed stock, sustained selling pressure.

gotta like markets

I agree with that concept. Still, just on those numbers only, he will still have $10m in the SMSF so will be hit on the excess of $7m.

 

[Dona Ferentes]

true... and its only one of his assets.

I'm not too worried about him. This is the performance of the holding :

 

[Belli]

I'm not too worried about him.

I detect a certain lack of empathy for one's fellow man.

Funny how that happens when there is a considerable amount of money involved and it isn't yours.

Nevertheless there is an element of unfairness in the situation.

 

[Dona Ferentes]

not at all.

straight bat, dry pitch.

 

[divs4ever]

I detect a certain lack of empathy for one's fellow man.

Funny how that happens when there is a considerable amount of money involved and it isn't yours.

Nevertheless there is an element of unfairness in the situation.

today it's 'them ' but tomorrow it could be you

but a standard tactic for government revenue raising

the camel nose under the tent syndrome

i saw 'unrealized gains ' and knew there was a slippery slope ahead

 

[Junior]

A decent Financial Adviser and Accountant can easily guide anyone through these changes.

I don't understand the panic. If in doubt, pull some assets out of super and invest through a different structure.

Worst case scenario, you might have to pay some tax.

 

[divs4ever]

i see a ( potential ) tax on unrealized gains and a scenario of sustained inflation as 'double taxation '

but of course the government won't see that just like they were tardy to reacting to 'bracket creep ' in the '70s and '80s they will be too busy divvying up the extra revenue ( trying to buy your vote )

 

[qldfrog]

A decent Financial Adviser and Accountant can easily guide anyone through these changes.

I don't understand the panic. If in doubt, pull some assets out of super and invest through a different structure.

Worst case scenario, you might have to pay some tax.

Pull some assets out of super ...do you not see the problem for most?

 

[dyna]

Worst case scenario, you might have to pay some tax.

Interesting article in last Thursday's AFR ( 19 th October ) by that rag's economics editor , John " leftie " Kehoe : " Why retirees should pay their fair share of tax " .
The Graten Institute has been pushing for it ,of course , long before the recent Intergenerational Report's findings. But the real concern is Treasury . They have the ear of government .
It all depends now on how brave old mate , Jimbo feels about jumping into the " Tax reform " fire.
It's the oldies who have got the dough he's after. How to get at it without losing their vote in an election ?

 

[divs4ever]

Interesting article in last Thursday's AFR ( 19 th October ) by that rag's economics editor , John " leftie " Kehoe : " Why retirees should pay their fair share of tax " .
The Graten Institute has been pushing for it ,of course , long before the recent Intergenerational Report's findings. But the real concern is Treasury . They have the ear of government .
It all depends now on how brave old mate , Jimbo feels about jumping into the " Tax reform " fire.
It's the oldies who have got the dough he's after. How to get at it without losing their vote in an election ?

he is already trying , now how many super-contributors well see the thin edge of a very wide wedge .. and give them the Shorten treatment