Superannuation, the ultimate government cash cow?

[CanOz]

And this is the problem. I'm getting close to my 500K limit. I have no chance of getting concessional contributions as I stopped working a long time ago. Then I sold our investment property just over a year ago. The funds from that was earmarked for Super. Now I can't put it in because someone overnight had a brain fart and made it effective immediately, talk about going backwards. They really don't think these things through do they?

This is the main problem i reckon. When i was with a big F500 company, we would take months to do our annual operating plans. We would start working on the following years plan only after starting to execute the current years plan. That plan was for medium size unit of the business, not a bloody country I can't believe how they even dream this stuff up.

 

[Junior]

And this is the problem. I'm getting close to my 500K limit. I have no chance of getting concessional contributions as I stopped working a long time ago. Then I sold our investment property just over a year ago. The funds from that was earmarked for Super. Now I can't put it in because someone overnight had a brain fart and made it effective immediately, talk about going backwards. They really don't think these things through do they?

I suspect the rules might be tweaked a bit, as there would be quite a few in your situation. You would also have the $500k cap for your partner as well.

 

[SmokeyGhost]

I suspect the boffins do think these things through to a large extent which is why the guillotine on the 500k non-deductible contribution was made effective from 7:30 pm on 3 May, yet other initiatives are proposed to be introduced at a later date. It has had the unfortunate effect of preventing some "smaller" players implementing their plan but I'm guessing it was done to prevent larger fish taking advantage.

Some of those dudes in Finance and Treasury are not the shallow thinkers many would like to believe.

 

[CanOz]

I suspect the boffins do think these things through to a large extent which is why the guillotine on the 500k non-deductible contribution was made effective from 7:30 pm on 3 May, yet other initiatives are proposed to be introduced at a later date. It has had the unfortunate effect of preventing some "smaller" players implementing their plan but I'm guessing it was done to prevent larger fish taking advantage.

Some of those dudes in Finance and Treasury are not the shallow thinkers many would like to believe.

I don't think they're shallow or unintelligent....just a bit rushed and i suspect they could do better with more time and more collaboration.

 

[SmokeyGhost]

I don't think they're shallow or unintelligent....just a bit rushed and i suspect they could do better with more time and more collaboration.

Fair point. Possibly was also an attempt to avoid spreading the word through leaks which I believe has happened in the past.

I've never dealt with them and only met a couple at private social gatherings. Their level of conversation was enough to scare me into chatting about the weather and cricket (ex-public servant but my saving grace was I was only carried the bags and completely cashed out my super and rolled it into the SMSF - the taxpayer had funded me more than enough to shame me from taking a pension).

 

[sptrawler]

Fair point. Possibly was also an attempt to avoid spreading the word through leaks which I believe has happened in the past.

I've never dealt with them and only met a couple at private social gatherings. Their level of conversation was enough to scare me into chatting about the weather and cricket (ex-public servant but my saving grace was I was only carried the bags and completely cashed out my super and rolled it into the SMSF - the taxpayer had funded me more than enough to shame me from taking a pension).

You sound similar to me, once I looked into it, the depth their counter moves go to is scary.
I did the same as you and rolled over into SMSF.

They would have covered all this through the "white paper", to think they haven't thought it through, is a mistake.:cry

One issue I was thinking about, was what happens if you are over the $1.6m threshold, and are over 60 in pension mode.
The money which you must remove, is it removed tax free, or is it removed with tax payable on the taxable component.

 

[SmokeyGhost]

You sound similar to me, once I looked into it, the depth their counter moves go to is scary.
I did the same as you and rolled over into SMSF.

They would have covered all this through the "white paper", to think they haven't thought it through, is a mistake.:cry

One issue I was thinking about, was what happens if you are over the $1.6m threshold, and are over 60 in pension mode.
The money which you must remove, is it removed tax free, or is it removed with tax payable on the taxable component.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15 per cent). Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.

A tax on amounts that are transferred in excess of the $1.6 million cap (including
earnings on these excess transferred amounts) will be applied, similar to the tax
treatment that applies to excess non-concessional contributions.

That's from the Budget papers. I'm no expert but I suppose it will depend on whether the excess is a tax-free component or not.

Yeah, they've thought it through. I'm pretty sure of that now.

 

[sptrawler]

That's from the Budget papers. I'm no expert but I suppose it will depend on whether the excess is a tax-free component or not.

Yeah, they've thought it through. I'm pretty sure of that now.

As this aspect hasn't been enacted retrospectively, why couldn't someone over 60 in pension phase, just remove the excess now as a tax free withdrawal?
All withdrawals are a combination of taxable and tax free, dependent on the ratio applied, when the pension was started.
I just can't see why the account holder couldn't just remove it as a tax free withdrawal, as the rules stand currently.

 

[SmokeyGhost]

As this aspect hasn't been enacted retrospectively, why couldn't someone over 60 in pension phase, just remove the excess now as a tax free withdrawal?

If I were in such a situation it's what I'd do. Random thought: Is that what is actually intended?

Could also be some fascinating unwinding of property if that is in some SMSF's.

Gee it's gonna be fun watching.

 

[sptrawler]

If I were in such a situation it's what I'd do. Random thought: Is that what is actually intended?

Could also be some fascinating unwinding of property if that is in some SMSF's.

Gee it's gonna be fun watching.

As usual the intent is lost in the fine print, it will be a fun ride, as the penny drops.

 

[McLovin]

As this aspect hasn't been enacted retrospectively, why couldn't someone over 60 in pension phase, just remove the excess now as a tax free withdrawal?

Because it will be tax-free after the change as well.

 

[sptrawler]

Because it will be tax-free after the change as well.

Is that right, thanks for that McLovin, I knew one of you gurus would know the answer.

I can sleep easy, and tell my husband not to worry.

 

[McLovin]

I can sleep easy, and tell my husband not to worry.

You're a woman? For some reason I always thought you were a man!

May I suggest a better avatar...

 

[luutzu]

Is that right, thanks for that McLovin, I knew one of you gurus would know the answer.

I can sleep easy, and tell my husband not to worry.

Homer? How was the (new) honeymoon?

 

[sptrawler]

You guys crack me up, enough humour for today.
I just thought, maybe I had better show my feminine side.

Myself and the other half rode over to the major shopping mall today, about 10k's, when we alighted her bike was stolen.

Jeez she was pi$$ed with the walk home. The bikes were locked with a 10mm stainless braid cable and number lock.
Cut clean as a whistle.
Just shows the needy can afford good quality tools, what a wonderful country, our future in their hands.lol

 

[SmokeyGhost]

You guys crack me up, enough humour for today.
I just thought, maybe I had better show my feminine side.

Myself and the other half rode over to the major shopping mall today, about 10k's, when we alighted her bike was stolen.

Jeez she was pi$$ed with the walk home. The bikes were locked with a 10mm stainless braid cable and number lock.
Cut clean as a whistle.
Just shows the needy can afford good quality tools, what a wonderful country, our future in their hands.lol

They don't buy them. Simply back up the Pantech and load the goods on. Sheese, $90k of snap-on tools gone in a flash including the bloody forklift they used to load 'em.

 

[sptrawler]

Has anyone got more enlightenment on the budget superannuation measures?

The more I think about it the more it seems very fair, I would like to find a viable argument against it, but I can't.

 

[SmokeyGhost]

The proposals did to some extent put a halt to my strategy, and that of others more than likely. Unfortunate but legislative risk is always a possibility. For me, as my SMSF currently is not too far from the proposed tax-free limit, I'll not worry about it, wait until the dust settles and continue to invest available funds outside of the superannuation structure - or buy that Gibson J-45 I've been lusting after for sometime.

However, taking the position the intent of the proposal is to limit the amount of funds available tax free in retirement and not using superannuation as a wealth creation structure, I can the rationale behind the the Budget proposal.

Heck, if one does have $1.6M at age 60, that is $64k. Haven't done any reverse calculations to determine what that would be gross under the personal income tax arrangements but it is certainly more than I received when I was working. And I lived quite well on that income.

 

[Junior]

In general I like the changes and they are fair, except for the retrospective nature of the lifetime cap.

There are a number of people out there who plan to retire within say, 5 years, who were planning on using the $180k pa and $540k cap to boost their super at the last moment. People in this situation include self-employed with low super balance, and widows who typically raised kids in the 80s/90s and therefore did not accumulate much of a balance. I use these examples because I personally know many in this position.

These people would be using funds from an inheritance, sale of small business, sale of investment property, or downsizing of the family home to boost their super just in time for retirement.

Having the rules changed so radically at the last moment, has stuffed up the planning for a few people.

So to say that $1.6mill is a reasonable amount to have in super, but only allow $500,000 to be contributed is unfair. The $500k cap is plenty for younger folk who will have SG and concessional contributions every year until retirement, and it's plenty for a couple who can double that cap, but it's not enough for a single person in the situation I've described.

Labour will (and have already) pounce on this aspect of it, and I predict it will be amended to include either a higher lifetime cap, or a transitional arrangement for those over 50.

 

[Bill M]

In general I like the changes and they are fair, except for the retrospective nature of the lifetime cap.

There are a number of people out there who plan to retire within say, 5 years, who were planning on using the $180k pa and $540k cap to boost their super at the last moment. People in this situation include self-employed with low super balance, and widows who typically raised kids in the 80s/90s and therefore did not accumulate much of a balance. I use these examples because I personally know many in this position.

These people would be using funds from an inheritance, sale of small business, sale of investment property, or downsizing of the family home to boost their super just in time for retirement.

Having the rules changed so radically at the last moment, has stuffed up the planning for a few people.

So to say that $1.6mill is a reasonable amount to have in super, but only allow $500,000 to be contributed is unfair. The $500k cap is plenty for younger folk who will have SG and concessional contributions every year until retirement, and it's plenty for a couple who can double that cap, but it's not enough for a single person in the situation I've described.

Labour will (and have already) pounce on this aspect of it, and I predict it will be amended to include either a higher lifetime cap, or a transitional arrangement for those over 50.

You have hit the nail on the head Junior, I agree with all aspects of your post.

The 2 main points I raised initially (lifetime caps and TRP) was raised on Channel 9 news 2 nights ago. It really does seem as though they did not take this big group of people into consideration.

Example, my wife earns 26K per year part time and relies on her TRP for extra support. Now (even though she has been on the TRP for a couple of years) she will get taxed on the income earnings of that pension (at the stroke of a pen one could say). It is a unfair to enter a system under existing rules and then have them changed half way through. This is not catching big fish as the government would like to have us believe, this is penalising small time savers who are trying to maximise their super.

Otherwise I don't have any problems with the changes to Super.