Superannuation, the ultimate government cash cow?

[sydboy007]

I wonder if the pretty graphs take into account the fairly recent DIV 293 tax which results in a 30% tax rate on contributions for income over 300K?

I suspect most over 300K will be structuring outside super to cap their tax rate at the 30% corporate rate any way. So the concession calculations to the top end are more ‘notional’ then real life.

They're also purely based on SG contributions and don't take into account the use of salary sacrificing or non concenssional contributions.

 

[sydboy007]

From those graphs, it would appear it is only the top 10% that is causing an issue.
If you only view the graphs upto 90%, when you consider the system is still young, it isn't bad.

Obviously things need tweaking, however it isn't as bad as I presumed.

One has to keep in context, that super was meant to be a pension supplement not a pension replacement, it was to encourage people to save to enhance their retirement.

The side benefit for the Government, was less dependence on the pension due to means testing and a sovereign wealth fund of sorts.

It does seem perverse that the true middle class are being shafted mainly to provide the excess benefits to those 10%, which would be over 1 million individuals. The $$$ would probably help fund all of Gonski, something that would improve the long term economic potential of the country.

It's not like we're facing a $40B deficit and possibly the fastest fall in the ToT over the last 100 years that we can continue with this generosity towards those who don't really need the help, yet we're talking about cutting back on the increase in the pension to limit costs, increasing the costs of Uni and TAFE fees. If all tax reform is on the table, why does the Govt treat super and NG as sacred white cows immutable to change?

 

[sptrawler]

It does seem perverse that the true middle class are being shafted mainly to provide the excess benefits to those 10%, which would be over 1 million individuals. The $$$ would probably help fund all of Gonski, something that would improve the long term economic potential of the country.

It's not like we're facing a $40B deficit and possibly the fastest fall in the ToT over the last 100 years that we can continue with this generosity towards those who don't really need the help, yet we're talking about cutting back on the increase in the pension to limit costs, increasing the costs of Uni and TAFE fees. If all tax reform is on the table, why does the Govt treat super and NG as sacred white cows immutable to change?

It will be interesting to see what actually comes out of the tax 'white' paper, also which side of politics is prepared to take the unsavoury aspects, to the next election.

Up to now, neither side has addressed the real issues, for fear of electoral backlash.

 

[sptrawler]

It does seem perverse that the true middle class are being shafted mainly to provide the excess benefits to those 10%, which would be over 1 million individuals. The $$$ would probably help fund all of Gonski, something that would improve the long term economic potential of the country.

This is where the story becomes confusing to the general population.
Some say as you do there are 1million individuals who have excessively high balances in super.

Then you get others making theses statements:

In all it has been estimated that some 60,000 superannuation accounts have balances exceeding $1.5 million at present.

A recent assessment by the Association of Superannuation Funds of Australia put the number of superannuation millionaires with $10 million-plus account balances at 475. ASFA also concluded there were another 24,000 people with $2 million-plus accounts - both groups earning hundreds of thousands and even millions in tax-free income from their superannuation.

The above came from this article:

http://www.theage.com.au/federal-po...-future-labor-government-20150421-1mq49r.html

It is difficult to reconcile who is talking facts and who is fudging.

But it is obvious something needs doing, $10m in super generating tax free income and earnings, is as obscene as top politicians getting $300,000 tax free, indexed for life.

They have lost the plot.lol

 

[Ferret]

So Labor want to put a 15% tax on super earnings over $100,000. Didn't they want to do something similar when in government but backed away because it was going to be too complex?

The problem is that as a long term investment, Super has to have very good years sometimes (>15%) to make up for the negative years.

A balance of $667k will be hit by the tax in a 15% year. That's the sort of balance many ordinary people would have.

 

[craft]

So Labor want to put a 15% tax on super earnings over $100,000. Didn't they want to do something similar when in government but backed away because it was going to be too complex?

The problem is that as a long term investment, Super has to have very good years sometimes (>15%) to make up for the negative years.

A balance of $667k will be hit by the tax in a 15% year. That's the sort of balance many ordinary people would have.

Big difference seems to be only earnings in the pension phase will be impacted.

From July 1, 2017, once a person is retired and drawing on their super, the first $75,000 in super income will remain tax free but earnings above that would be taxed at the concessional rate of 15 per cent.

All things considered it seems pretty reasonable too me. You have access to your money at that stage - so if you don't like it take your money out. A maximum cap in the retirement phase would probably be cleaner and simpler. ie anything over 2Mill has to be removed immediately from the tax favoured super environment.

My issue with Labors last proposal was they were changing the rules during the period when you don't have access. A breach of terms under which money was put in without the means to remove it again.

 

[Ferret]

$75k is proposed as you point out. I still don't like that you get taxed in the good years, but presumably no tax credits for the bad years.

Not sure about having to immediately take out funds if over $2m. Could work, but might be difficult for someone with a property in an SMSF.

 

[Junior]

$75k is proposed as you point out. I still don't like that you get taxed in the good years, but presumably no tax credits for the bad years.

Not sure about having to immediately take out funds if over $2m. Could work, but might be difficult for someone with a property in an SMSF.

A 15% return doesn't equal 15% earnings though. It depends when gains are actually realised, and therefore assessed as income.

Also....if you're earning that much in super it's likely there's plenty of franking credits to offset any potential tax.

I bet it wouldn't raise anywhere near as much revenue as what they're claiming.

 

[craft]

I still don't like that you get taxed in the good years, but presumably no tax credits for the bad years.

Simple then - take the money out and get taxed at marginal rates starting at 32.5% for 75K. (but alas still no tax credits for the bad years either)


Then again maybe the proposed super option aint so bad even without a tax credit for the bad years.

 

[orr]

So a 15% tax on super earnings over $100,000.


A balance of $667k will be hit by the tax in a 15% year. That's the sort of balance many ordinary people would have.

In this hypothetical good year the $667k superannuant would pay $7.50 in tax, on $100,050.00 presuming that they couldn't find $50 of costs.

 

[Ferret]

In this hypothetical good year the $667k superannuant would pay $7.50 in tax, on $100,050.00 presuming that they couldn't find $50 of costs.

Since 75k is the actual limit being proposed, the tax on $667k in the hypothetical 15% return good year would be $3757.50.

 

[Junior]

Since 75k is the actual limit being proposed, the tax on $667k in the hypothetical 15% return good year would be $3757.50.

No, it wouldn't.

Unless you realise ALL capital gains for that particular financial year (i.e. actually sell all profitable investments, rather than holding), your super fund has no deductible expenses, and you receive no franked dividends as part of your return.

It's also worth noting that limit would presumably be per member. So, for a couple there would be able to receive up to $150,000 in earnings completely tax free within your fund. Still very generous!!

 

[sptrawler]

No, it wouldn't.

Unless you realise ALL capital gains for that particular financial year (i.e. actually sell all profitable investments, rather than holding), your super fund has no deductible expenses, and you receive no franked dividends as part of your return.

It's also worth noting that limit would presumably be per member. So, for a couple there would be able to receive up to $150,000 in earnings completely tax free within your fund. Still very generous!!

That would only be if both members had similar amounts.
What about funds where the male member has the much larger sum? As is usually the case.
Balancing the sum takes time, if at all, due to contribution and age constraints.

 

[Junior]

That would only be if both members had similar amounts.
What about funds where the male member has the much larger sum? As is usually the case.
Balancing the sum takes time, if at all, due to contribution and age constraints.

You are correct, I guess my point is, there will no doubt be strategies you can implement to take advantage of the tax free amount.

Tax free earnings of up to $75k each within the super environment, combined with the tax free threshold for each member of a couple outside of super means you can still accumulate plenty of wealth for retirement, and pay very little tax.

 

[sptrawler]

You are correct, I guess my point is, there will no doubt be strategies you can implement to take advantage of the tax free amount.

Tax free earnings of up to $75k each within the super environment, combined with the tax free threshold for each member of a couple outside of super means you can still accumulate plenty of wealth for retirement, and pay very little tax.

Good points Junior, I think there will be a lot of shuffling going on in the forseable future.

 

[Ferret]

No, it wouldn't.

Unless you realise ALL capital gains for that particular financial year (i.e. actually sell all profitable investments, rather than holding), your super fund has no deductible expenses, and you receive no franked dividends as part of your return.

You're only thinking of SMSFs. There are many people (myself included) who have their super in a managed fund that gives an annual net investment return.

 

[Brickie2]

No, it wouldn't.

Unless you realise ALL capital gains for that particular financial year (i.e. actually sell all profitable investments, rather than holding), your super fund has no deductible expenses, and you receive no franked dividends as part of your return.

It's also worth noting that limit would presumably be per member. So, for a couple there would be able to receive up to $150,000 in earnings completely tax free within your fund. Still very generous!!

In Our SMSF in Pension mode all unrealised & realised C/Gns & Fr/Credits are counted in each years income.
As we have been in pens for over 15 years we have no losses carried fwd ( Not done I'm told), we lost about 35% in GFC.
Some years we have losses and some gains, will they even these out.
Don't forget the sting in the tail of SMSFs etc when you finally fall off your perch ( I'M getting close) your adult beneficiaries will pay tax on the untaxed amount they receive at their marginal tax rate.
Does the proposer of this new tax not realise good Generals lead from the front, not a mention of cutting their pensions + Perks.

 

[sptrawler]

Don't forget the sting in the tail of SMSFs etc when you finally fall off your perch ( I'M getting close) your adult beneficiaries will pay tax on the untaxed amount they receive at their marginal tax rate.
.

Are you sure of that?
It is my understanding that the untaxed component is taxed at 16.5%, when it is rolled out into the estate.

 

[Boggo]

Does anyone have the content of the Robert Gottliebsen article in the Business Spectator re how SMSF's will benefit from Shorten's proposal.

Seems you have to be a subscriber to access it.

 

[Junior]

In Our SMSF in Pension mode all unrealised & realised C/Gns & Fr/Credits are counted in each years income.
As we have been in pens for over 15 years we have no losses carried fwd ( Not done I'm told), we lost about 35% in GFC.
Some years we have losses and some gains, will they even these out.
Don't forget the sting in the tail of SMSFs etc when you finally fall off your perch ( I'M getting close) your adult beneficiaries will pay tax on the untaxed amount they receive at their marginal tax rate.
Does the proposer of this new tax not realise good Generals lead from the front, not a mention of cutting their pensions + Perks.

The untaxed element has a maximum tax rate of 30% when passed down to non-dependant beneficiaries...so it would be the lower of their marginal rate or 30%. You might be able to consider moving more funds outside of the super environment, or putting in place a testamentary trust if you're concerned about this. There are strategies available. This is not advice, DYOR.

With unrealised gains/losses, they might be reported as far as showing the performance of your fund each year. However, capital gains/losses are not included in assessable income until they are realised.