Superannuation, the ultimate government cash cow?

[prawn_86]

If I earn $100k there's $0 tax so my after tax income is $100k.

If I earn $150k there's 15% tax on that extra $50k, so I pay $7.5k tax and left with after tax income of $142.5k.

So in order to avoid paying $7.5k tax I should invest conservatively and forgo $42.5k of after tax income

That's putting the tax cart in front of the income horse...

No i'm saying that if someone has 2m in an account they might decide to put it in a TD at 5% rather than risking the volatility of stocks that have div yields of 7 - 8% (although franking credits also need to be considered). Obviously it would be different for everyone on a risk:return basis

 

[sptrawler]

It will get a lot more than 16,000 people, if interest rates go back to long term average of 7 _ 8% . Nothing like a dose of bracket creep, to enhance long term returns.

Also I still think it would have been easier to administer if it was a tax on the pension recieved.

 

[craft]

You don’t even have to envisage high interest rates to get bracket creep.

The 100K represents approx 1 and a third times average wage and is indexed to CPI.

Go forward 30 years where wages have grown by 4.5% and inflation stays at mid band RBA target at 2.5% and tax free threshold will only be three quarters of the average wage.

Any productivity gains that flow to wage earners are not recognised by the indexing.

Its worth also noting that If earnings are running at 4.5% the guy/girl with 2 Million bucks has to earn and re-invest 90K just to stay still in real terms. The 100K exemption is just about blown before they draw a cent to spend.

Earning 5% on 2 Million and spending 100K is a sizable draw down in real terms.

 

[sptrawler]

You don’t even have to envisage high interest rates to get bracket creep.

The 100K represents approx 1 and a third times average wage and is indexed to CPI.

Go forward 30 years where wages have grown by 4.5% and inflation stays at mid band RBA target at 2.5% and tax free threshold will only be three quarters of the average wage.

Any productivity gains that flow to wage earners are not recognised by the indexing.

Its worth also noting that If earnings are running at 4.5% the guy/girl with 2 Million bucks has to earn and re-invest 90K just to stay still in real terms. The 100K exemption is just about blown before they draw a cent to spend.

Earning 5% on 2 Million and spending 100K is a sizable draw down in real terms.

It certainly is, also in the pension phase one assumes the person will not be in a position to add to it. I think there will be a lot of re_balancing of fund weightings between members.

 

[nulla nulla]

It certainly is, also in the pension phase one assumes the person will not be in a position to add to it. I think there will be a lot of re_balancing of fund weightings between members.

yeah right. Like this forum is full of members with more than $2,000,000.00 in their super funds. The reality is:

1. The proposed changes would affect less than 1% of suparannuants;
2. Legislation changes are not going to be voted on until after the election; and
3. It will never get voted on as labor will be gone after the election.

All the kerfuffle is a storm in a tea cup. Stupid comments from both parties blathering on about something that will never happen. And it gets so much air time it is a joke.

 

[banco]

Maybe think about the fact that this change is only mooted presumably to quell all the damaging speculation that Labor so unwisely allowed to start.

The proposed reforms will not be legislated before the election, after which the Coalition will be running the show. Given his frothing at the mouth today about this 'reform', Mr Abbott can hardly legislate it or anything similar.

So people might stop running around frantically rearranging their financial affairs and further contributing via fees to the retirement plans of the financial planners.

Have they announced they won't be legislated before the election?

 

[tinhat]

very details long article on AFR if you dont have access I can PM you...

Personally I think it is not too bad ..someone on 100K tax free earning is enough to live a good life style
anything after 15% tax sound ok... there is a little bit of capitalist left in labor

someone with 3m plus account will do with a little less and I am sure they wont be happy

Thanks mate. As long as can grab the headline then google it, then click on the google cached copy you can access the articles behind the news ltd firewall.

Superannuation Minister Bill Shorten and Treasurer Wayne Swan this morning revealed Labor would cap the exemption for earnings on superannuation assets supporting income streams at $100,000 with a concessional tax rate of 15 per cent to apply after that.

Read more: http://www.news.com.au/money/supera...0k/story-e6frfmdi-1226612971840#ixzz2PZRPN5Q6

So the $100k threshold only applies to pension phase accounts. As others have said I can only dream of having to worry about this when I get to retirement (if ever). Of course, there will be more changes along the way. And people, surely you can't believe everything Uncle Tony and Uncle Joe are saying right now? They will get in on such a landslide that they will be able to afford to renege on every empty platitude and hollow promise they are espousing right now. Just as John Howard did. Just as Bob Carr did in NSW. If only they could shut up Andrew Robb (those anti-depressants must act like a truth serum).

Thank goodness life is not all about money!

 

[drsmith]

Yep I can just picture you accountant's sitting around thinking mmmm multiple funds – multiple fees.

Surely the legislation would cover it, but you never know – undoubtedly something will be porous. Taxing the top end is like herding cats.

That might need to be more opaque than multiple funds under the same name (TFN), but after the MRRT debacle, you never know.

This I suspect will be an issue left for the bureaucrats to resolve in the detail should Labor be re-elected.

 

[drsmith]

You don’t even have to envisage high interest rates to get bracket creep.

The 100K represents approx 1 and a third times average wage and is indexed to CPI.

Go forward 30 years where wages have grown by 4.5% and inflation stays at mid band RBA target at 2.5% and tax free threshold will only be three quarters of the average wage.

Any productivity gains that flow to wage earners are not recognised by the indexing.

Its worth also noting that If earnings are running at 4.5% the guy/girl with 2 Million bucks has to earn and re-invest 90K just to stay still in real terms. The 100K exemption is just about blown before they draw a cent to spend.

Earning 5% on 2 Million and spending 100K is a sizable draw down in real terms.

Another perhaps greater risk is that like with any new tax, the threshold and rate can be changed to suit the government of the day.

This I reckon will be Labor's thinking more than anything else.

 

[sptrawler]

Another perhaps greater risk is that like with any new tax, the threshold and rate can be changed to suit the government of the day.

This I reckon will be Labor's thinking more than anything else.

It's certainly the thin edge of the wedge if it gets through. Can't see Slipper, Wilkie and Oakeshott voting for it myself.

 

[drsmith]

It's certainly the thin edge of the wedge if it gets through. Can't see Slipper, Wilkie and Oakeshott voting for it myself.

They won't matter. Labor have no intention to legislate before the election.

In the absence of the Coalition adopting the same type of policy or (god forbid) Labor win, the discussion is largely academic.

 

[nulla nulla]

This I suspect will be an issue left for the bureaucrats to resolve in the detail should Labor be re-elected.

Sleep easy Dr Smith, you have more chance of winning lotto than labor has being re-elected. The swing against them in the marginal seats alone will be enough to consign them to the opposition benches.

 

[RandR]

That might need to be more opaque than multiple funds under the same name (TFN), but after the MRRT debacle, you never know.

This I suspect will be an issue left for the bureaucrats to resolve in the detail should Labor be re-elected.

One does not have to have all their superannuation in pension or accumulation and one is free to move from pension back into accumulation. You will find people will thus probably only put in the max amount required into pension to make use of tax free and keep the rest in accumulation (where its taxed at 15% anyway) where there is no requirement to drawdown

 

[FlyingFox]

This is a first step in the right direction. I doubt it will be the last. Depite the rhetoric from Abbott, I think the more sensible heads in the opposition realise the current arrangement isn't sustainable.

Hopefully ... assuming they can think past their next term in office...

 

[Julia]

yeah right. Like this forum is full of members with more than $2,000,000.00 in their super funds. The reality is:

1. The proposed changes would affect less than 1% of suparannuants;
2. Legislation changes are not going to be voted on until after the election; and
3. It will never get voted on as labor will be gone after the election.

All the kerfuffle is a storm in a tea cup. Stupid comments from both parties blathering on about something that will never happen. And it gets so much air time it is a joke.

Exactly. As I have pointed out earlier in the thread.
I just cannot believe all the talking heads taking up time in current affairs programs discussing this when it simply won't happen. So utterly silly.

Have they announced they won't be legislated before the election?

Yes.

They won't matter. Labor have no intention to legislate before the election.

In the absence of the Coalition adopting the same type of policy or (god forbid) Labor win, the discussion is largely academic.

And therefore pointless. Doesn't seem to have deterred several posters here getting into the purely academic discussion.

 

[sptrawler]

Maybe it's just a diversion, give everyone a common focus, stops them focusing on the actual policies that have failed and are continueing to fail.

You are not seeing much in the press about all the other failures.
So it would appear to be working, let's not forget even the reporters have skin in the superannuation game.

Gillard is playing a time wasting diversion tactic.IMO
The budget won't have any real nastys in it and they have survived another couple of months.

Slimy lot.

Which goes back to this post.
But it has been a great chat.

 

[drsmith]

Doesn't seem to have deterred several posters here getting into the purely academic discussion.

A chat and a cuppa can be good for the soul. The views of others can also help broaden one's knowledge and perspective.

For me, it's not specifically about the policy itself.

 

[sptrawler]

You don’t even have to envisage high interest rates to get bracket creep.

The 100K represents approx 1 and a third times average wage and is indexed to CPI.

Go forward 30 years where wages have grown by 4.5% and inflation stays at mid band RBA target at 2.5% and tax free threshold will only be three quarters of the average wage.

Any productivity gains that flow to wage earners are not recognised by the indexing.

Its worth also noting that If earnings are running at 4.5% the guy/girl with 2 Million bucks has to earn and re-invest 90K just to stay still in real terms. The 100K exemption is just about blown before they draw a cent to spend.

Earning 5% on 2 Million and spending 100K is a sizable draw down in real terms.

Hey Craft, you seem to have a good handle on the accounting side.
If they are going to tax earnings above $100k in the pension phase, will that mean that loses will be able to be applied?
At present as it's untaxed, losses can't be applied?
What do you reckon?

 

[drsmith]

Under current arrangements, all new earnings (such as dividends and interest) on assets supporting income streams (superannuation pensions and annuities) are tax-free. This is in contrast to earnings in the accumulation phase of superannuation, which are taxed at 15 per cent.

From 1 July 2014, earnings on assets supporting income streams will be tax free up to $100,000 a year for each individual. Earnings above $100,000 will be taxed at the same concessional rate of 15 per cent that applies to earnings in the accumulation phase.

Upon reading that statement, I'm unsure as to whether unrealised variation in the capital assets will be considered as part of the income stream for the above tax threshold. I would say no on the above, but that's only because of omission rather than a definitive answer.

We may need to wait for the fine print to get the definitive answer, if it gets that far.

http://resources.news.com.au/files/2013/04/05/1226613/049704-aus-na-file-superannuation.pdf

 

[Judd]

Upon reading that statement, I'm unsure as to whether unrealised variation in the capital assets will be considered as part of the income stream for the above tax threshold. I would say no on the above, but that's only because of omission rather than a definitive answer.

We may need to wait for the fine print to get the definitive answer, if it gets that far.

http://resources.news.com.au/files/2013/04/05/1226613/049704-aus-na-file-superannuation.pdf

A number of aspects were unclear but it seems that that 'earnings' includes movement in unrealised gains for the purposes of reporting through the SMSF profit and loss account. The $100,000 threshold could catch large/lumpy gains eg when a SMSF sells a residential or commercial property in pension phase.

You would think the tax should only apply to actual gains upon realisation but it is still early days before any legislation is passed.

And it certainly has not been clarified whether the $100k is at fund, per member or individual account level. What about multiple fund situations?

All nice and wonderful at the announcement and concept level but as appears to be usual with this Government lately, no fine details appear to have been thrashed out beforehand. Another "shoot from the hip moment" because we feel pressures to say something to the populace which wont make us look too bad?