Superannuation, the ultimate government cash cow?

[craft]

Well, that's just going to push people towards fully franked dividends even more.

??? Imputation credits are included as part of assessable income - can you explain to me what you see as a benifit for moving more towards franked dividends?

 

[craft]

That's why I think, the tax should be all encompasing of everyone, at a pension amount, not on earnings.

It should also cover polliticians pensions, which would be very easy to apply if it was triggered at a certain pension amount.

How are you going to tax pension income without removing the ability for people to take lump sums?

 

[craft]

Surely it's time for Tony Abbott to stop making irresponsible comments?


There will be thousands of ordinary, ill-informed Australians who will take this extravagant statement at face value.
Perhaps he will gain some votes from such people as a result, but isn't he in the process losing respect from people whose goodwill he needs?

As you would say Julia +1

We are only ever talking a reduction of some very favourable tax concessions when it comes to changes made to the super system. Regardless of which party is making the changes.

However the political debate iis leading most people to conclude super is not safe when it is and will remain the most tax advantaged way to save for retirement.

I can’t believe people that may be affected by the 15% on earnings are talking about pulling out their funds into a 46.5% marginal tax environment. Its rhetoric /fear not logic.

 

[sptrawler]

How are you going to tax pension income without removing the ability for people to take lump sums?

Good point craft, that would have to come into the mix. In U.K apparently you are only allowed to remove 40% as a lump.

 

[tinhat]

??? Imputation credits are included as part of assessable income - can you explain to me what you see as a benifit for moving more towards franked dividends?

The newspaper article being discussed earlier was asking whether capital gains are to be included as income. Given that it is the performance of the pension phase account that is being assessed (not the actual pension drawn) then the answer would appear on face value to be "yes" - CGT events are treated as income. CGT events create "lumpy" income that could easily push someone on a middle of the road SMSF pension over the $100,000 threshold creating more incentive to seek yield over capital gains.

 

[craft]

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

It’s all academic because a realistic evaluation of circumstances suggest we will never see legislation.

However I can’t imagine unrealised gains/losses would be captured – There is already legislation in place that specifies everything with-in super is on a Capital Acoount. A CGT event would have to happen for a gain to be included.

Even so realising capital gains is the smoking gun in the legislation – It has the potential to catch many funds in years when gains are realised.

The grandfathering measures are generous.

 

[craft]

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?

Capital Gains losses would be of benefit.

A far as I understand it they are actually still included in the CGT calculation now – Its just that in pension phase whatever the assessable income comes out to be – you are allowed a full exemption.

The only change is the exemption will now be capped at 100K for all earnings.

 

[craft]

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.

They are talking fund level at the moment as V indicated. If they don’t have something in the legislation to limit the exemptions at the individual level then multiple funds will be with-in the law. It's this type of thing that is not foreseen that makes legislation porous.

 

[craft]

IF the proposed changes are ever passed I can see small family-owned business being negatively affected, again. Nothing new for this segment of our economy to be completely overlooked by our present Govt.

A good number of family owned SMEs own their business premises via their SMSFs. Quite often these same people haven't been able to make extra contributions to their super and the property forms the bulk of the value of the fund - well below the 2M mark. Upon retirement and the probable sale of the premises there would hopefully be a reasonable capital gain - which would then be subject to the 15% tax on cap gain/earnings over 100K. I know the grandfathering clause exempts property already owned for up to 10 years - but this is no comfort to those family businesses who don't envisage retirement or relocation within that timeframe. I guess not only accountants and planners will benefit from yet more tinkering with super, but also real estate agents, who will benefit from the inevitable push to sell lumpy assets within the 10 years. It would certainly make sense for those whose SMSF's main asset is a factory or similar to sell and rent back for a few years.

Capital gains will still be assessable at 10% if held for more than 12 Months - the discount is not affected.

The grandfathering on assets already held means that capital gains will only start to accrue after 2024. Ie if you own an asset now and you still own it in July 2024 you will record its valuation as of that date and only gains above that valuation will be included when the asset is finally disposed of.

 

[craft]

Noel Whittaker wrote a great article in the 'Sunday Times' today, the article is called 'Ad Fab for some'

It gives a great summary of the superannuation system and who are really the winners.

Here is another article in a similar line, just shows what a bunch of hypocrits the pollies are.

http://www.perthnow.com.au/news/pol...-says-opposition/story-fnhnv0wb-1226613617102

POLITICIANS on generous taxpayer-funded defined benefits would be thousands of dollars better off than ordinary workers whose superannuation earnings will be slugged, the Opposition said last night.


I hope Bolt or someone gets stuck into them.lol

In your rage at the Pollies pension – don’t lose sight that this policy at least is to be is to be applied evenly. There will be an element of capital draw down in a defined benefit pension, that may superficially make the pension payment taxation look different but the underlying earnings both cop the tax rate at 100K.

 

[craft]

The newspaper article being discussed earlier was asking whether capital gains are to be included as income. Given that it is the performance of the pension phase account that is being assessed (not the actual pension drawn) then the answer would appear on face value to be "yes" - CGT events are treated as income. CGT events create "lumpy" income that could easily push someone on a middle of the road SMSF pension over the $100,000 threshold creating more incentive to seek yield over capital gains.

Ok – moving towards yield rather than growth because of the CGT lumpiness problems with the proposed legislation – I understand. I wasn’t sure why you were singling out franked income.

This discrimination against growth assets is probably the poorest policy implication in my view.

 

[drsmith]

The retirement funding system should be thought about in a holistic way – Ie the cost of tax concessions + Pension payments.

The low income super rebate probably doesn’t do much to the overall funding cost of the demographic it touches – but it is a big measure in transferring the costs from the pension payment component to the tax concession component.

The tax concession cost occur earlier – removing this measure takes pressure of the budget now but pushes the cart down the road to when low wage /intermittent earners retire underfunded and will need to rely on the pension more heavily.

This really should be getting some scrutiny because introducing it was good policy – removing it is bad policy. However critiquing a Libral policy on ASF is akin to self torture – Best avoided I think.

Introducing it from an alternative revenue source was the bad policy. It should have been looked at in the context of weighing up the low income super contribution against the super-co contribution and the former reduced to fund the latter if the latter was regarded as a better incentive for low income earners.

I doubt Labor had the long term in mind when they introduced it. It was a handout to promote the MRRT in the public eye. There was nothing holistic in this and as a policy was made worse by virtue of the MMRT failing to raise the revenue expected and thus the program being unfunded. This type of fiscal failure goes to the heart of Labor's economic incompetence. They spend money they haven't raised and then start looking elsewhere to make up the shortfall.

With regard to the Coalition, they don't actually need to respond to the individual components of Labor's plan because without legislation this term, it's nothing more than en election commitment. The Coalition can therefore determine their own policy platform from the standpoint of where we are now for the public to compare with Labor and that in my view is what they should do.

I hope the Coalition lean more towards looking at the retirement funding system more in a holistic way in the lead up to the election. That will be the test for them.

 

[sptrawler]

Thanks craft, for all the posts, it's really great to have posters such as yourself, who have a proffessional understanding of the implications.
We are driven by spin and missinformation, self generated and press generated.
It's great you can supply some clarity to the actual issues, you certainly have answered a lot of my questions. Cheers

 

[craft]

Thanks craft, for all the posts, it's really great to have posters such as yourself, who have a proffessional understanding of the implications.
We are driven by spin and missinformation, self generated and press generated.
It's great you can supply some clarity to the actual issues, you certainly have answered a lot of my questions. Cheers

You must have me confused with somebody else. I’m just a bum with an interest in super that read the press releases. I don’t bother with the media, everything gets lost in the translation and biases.

 

[drsmith]

They are talking fund level at the moment as V indicated. If they don’t have something in the legislation to limit the exemptions at the individual level then multiple funds will be with-in the law. It's this type of thing that is not foreseen that makes legislation porous.

It’s all academic because a realistic evaluation of circumstances suggest we will never see legislation.

However I can’t imagine unrealised gains/losses would be captured – There is already legislation in place that specifies everything with-in super is on a Capital Acoount. A CGT event would have to happen for a gain to be included.

Even so realising capital gains is the smoking gun in the legislation – It has the potential to catch many funds in years when gains are realised.

The grandfathering measures are generous.

I can only comment in the accumulation phase as I'm not yet retired. The annual statement I get describes fund earnings in any given financial year as a single figure which is inclusive of asset price variation (unrealised capital gains/losses).

In the pay down (retirement) phase, do funds break this down into the separate components such as unrealised capital movement and income from investments ?

They would need to do this for unrealised gains/losses not to be captured.

 

[sptrawler]

You must have me confused with somebody else. I’m just a bum with an interest in super that read the press releases. I don’t bother with the media, everything gets lost in the translation and biases.

My mistake.lol

 

[tinhat]

I wasn’t sure why you were singling out franked income.

It's just my observation that fully franked dividends tend to provide a greater after tax yield for people who don't pay income tax (such as pension phase super accounts). A property or infrastructure trust that has no franking credits tends to yield a lower after tax return for a superannuant pensioner than an income tax payer and visa-versa. So, when I am looking for income stocks for my Mum's pension phase super account I always calculate the grossed-up yield which almost exclusively puts fully franked dividend payers ahead of unfranked dividend payers. The only unit trust style stock I have considered buying for the SMSF was AAD when it was around $1 (yielding around 10%). Instead I piled into TLS which at that time was yielding 12% grossed up and banks which were yielding 10% grossed up.

 

[craft]

I can only comment in the accumulation phase as I'm not yet retired. The annual statement I get describes fund earnings in any given financial year as a single figure which is inclusive of asset price variation (unrealised capital gains/losses).

In the pay down (retirement) phase, do funds break this down into the separate components such as unrealised capital movement and income from investments ?

They would need to do this for unrealised gains/losses not to be captured.

The earnings you see on your statement are not the same as the earnings for tax purposes to the fund. The difference is recorded in the balance sheet as Deferred tax Liabilities/Assets.

The above probably sounds like gobledy gook - maybe a better way to try and explain it is that your annual statement earnings fluctuate with the market after an allowance for potential tax obligation - your actual taxable earnings for which actual tax is paid are different by the magnitude of the changes to the balance sheet tax accruals . The exemption is based on actual taxable earnings.

In a non SMSF fund all this is pretty complicated, non transparent and potentialyl averaged over many members. ( I really don't understand big fund accounting at all) Somebody like Ves or R&R might be able to explain it better.

 

[drsmith]

I've gone back to Wayne Swan's and Bill Shorten's media release from Friday,

The Government will better target the tax exemption for earnings on superannuation
assets supporting income streams, by capping it to the first $100,000 of future
earnings for each individual.

Under current arrangements, all new earnings (such as dividends and interest) on
assets supporting income streams (superannuation pensions and annuities) are taxfree.
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.

For superannuation assets earning a rate of return of 5 per cent, this reform will only affect individuals with more than $2 million in assets supporting an income stream.

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

I'm in the PSS which shows earnings and tax as follows,

Change in market value of investments: $228.7m
Other income: $2.1m

Income tax Expense: $34.2m

$34.2m is 15% of $228m.

http://pss.gov.au/storage/1-PSS 2011-2012 Annual Report to Members.pdf

My bolds.

 

[sptrawler]

I've gone back to Wayne Swan's and Bill Shorten's media release from Friday,





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

I'm in the PSS which shows earnings and tax as follows,

Change in market value of investments: $228.7m
Other income: $2.1m

Income tax Expense: $34.2m

$34.2m is 15% of $228m.

http://pss.gov.au/storage/1-PSS 2011-2012 Annual Report to Members.pdf

My bolds.

If your assumptions are correct doc, it could quite concievably hit a lot of people in a year of surging assett prices. One would hope all this would be thrashed out during the formulation process.

Another interesting statement by Shorten, when asked why limits weren't placed on withdrawls, he responded by saying he didn't want to spook the horses. Or something to that effect, can't locate the article.