Superannuation, the ultimate government cash cow?

[Ves]

Yes, the Small Business CGT Cap.....I believe that was always a separate cap over and above non-concessional and concessional. There was no mention of that, so I assume it's still in place.

Yep, pretty sure it is. I added a link above for those interested.

I've read about 8-10 Budget update publications from most of the major super providers and administrators and didn't see it mentioned.

 

[Ves]

Yes, with some decent financial advice, most people will be able to structure their arrangements such that it's not a major disadvantage. It's a peace of mind thing also, as superannuation is the structure designed to house retirement assets.

My general point though, is that if $1.6mill is an acceptable limit, folks within a few years of retirement should have some transitional arrangement in place to allow themselves to move their assets into super. The rules have been changed significantly and in my opinion, it's a bit harsh making it retrospective.

Particularly for the types I mentioned earlier who might have balances under $500k and are over 50 - i.e. single mums with now adult children who are downsizing homes, self-employed, people who had marriage breakdown etc.

I just look at things in terms of raw numbers, and there isn't much difference. An adviser who can teach their clients to do the same has won most of the battle.

For some people, having the mechanics explained to them with the proper details will provide enough security. There has always been many different types of entities with different tax structures, and knowledge of how they work definitely provides security in itself.

Yes, some people are emotional in their decision making (ie. unless it's in super it's not retirement savings) but you cannot make policies / decisions based on emotions. I'm not sure why the government needs to cater to emotional thinking when there are alternative ways you can arrange your affairs and pay the same amount of tax (at the levels in my first post, probably none).

 

[SmokeyGhost]

Well, well, my, my and dear oh dear. As for being forced, far from it.

http://www.theage.com.au/business/b...-smsf-property-borrowing-20160506-gonw0k.html

Budget 2016: Super tax crackdown to prompt spike in SMSF property borrowing

Accountants and wealth advisers predict a spike in risky property borrowing by self-managed super funds because of tougher superannuation rules.

Wealthy savers and self-funded retirees were angered by the harsher-than-expected crackdown on super in the 2016-17 budget on Tuesday night.

Most of the changes, including a $1.6 million limit on the amount that can be transferred from a super accumulation account into a retirement account (where earnings are tax free), are due to take effect from July 1, 2017.

A new lifetime limit on non-concessional (after tax) contributions of $500,000, backdated to 2007, took effect on budget night.

Experts tip the changes will force self-managed super funds (SMSFs) to load up on debt.

"There is still plenty of incentive for people, especially farmers and small business owners, to want to own property within their self-managed super fund," Findex advice standards manager Braith Morrow said.

Under the new rules, rather than being able to fund that investment through their own equity, many will be forced to take on more debt to do so, he said.

"There will certainly be a spike in SMSF borrowing as an unintended consequence of the new super rules."
Risk on the rise

Mr Morrow said higher leverage ratios would expose SMSF owners to greater risk in the event property prices dipped.

For the most part super funds are prohibited from borrowing. The exception is a special provision known as limited recourse borrowing arrangements only allowed in the SMSF sector.

"Less opportunity to put money into super will encourage small business owners and others to borrow to build capital in their fund," SMSF Owners' Alliance executive director Duncan Fairweather said.

"This is not a bad thing if they invest in quality assets and have the capacity to service the loan, but it isn't fair they are being forced into this position."

UBS Wealth Management executive director David Rolleston said there was a risk the new rules would exacerbate an already growing problem.

"I am particularly worried about the growing number of people in their 50s and 60s approaching retirement who think owning geared residential property in their SMSF is a good idea," Mr Rolleston said.
Regulators alert to risk

The Reserve Bank of Australia has been worried about the rising number of SMSF owners taking on debt to invest in property since at least 2013.

More recently the Australian Taxation Office has cracked down on SMSFs who don't qualify for bank finance turning to related-party loans to buy property.

Last year the government rejected the financial system inquiry's call to ban the practice. The inquiry, led by former Commonwealth Bank chief executive David Murray, found that while overall leverage in the SMSF sector was low its fast growing popularity posed an emerging "systemic risk".

In rejecting the ban Treasurer Scott Morrison said there was "no immediate evidence" to justify it but said the government would keep a "watching brief" on the practice.

The latest available ATO data shows SMSF borrowing remains on the rise.

 

[Bill M]

And then this, just what nobody wanted.

---
Fears emerge of a rush to the property market by wealthy Australians hit by new super rules

But for everyday workers whose biggest concern ”” housing affordability ”” was not addressed in the Budget, things could soon become even worse.

There are fears that the rich hit by the new super rules will simply plough their money into investment properties in greater numbers than ever.

And, as every frustrated househunter knows, it’s these investors who have put the heat into capital city markets, pricing out first home buyers from even far-flung outer suburban properties.

While high-income earners and wealthy retirees ring their accountants for advice on how to restructure their affairs, those still dreaming of home ownership will be wringing their hands in frustration.

http://www.dailytelegraph.com.au/li...s/news-story/4ef8f010c4ba9d529a223303b4f0a974
---

 

[Bill M]

Hypothetical.

Ves and others, am I right?

A couple who are both 60 or over.

Each have 100K in concessional contributions and 500K in non concessional contributions in their super.

Together it = $1.2 Million

They have a further 500K each outside of super. They do not wish to risk their returns on the 500K each more than the bond market. So lets say they get 3.5% running yields on that $1 Million.

Compulsory 4% super drawdown on $1.2 million = $42,000 P/A
3.5% on their out of super $1 Million = $35,000 P/A

Total $77,000 P/A.

As their super is untaxed after 60 all is good. The $17,500 each they make outside of super is also untaxed as it is under the tax threshold.

So in theory a couple could structure a $2.2 Million portfolio like this and pay no tax at all, is that correct? That's how I work it out anyway.?

 

[Ves]

So in theory a couple could structure a $2.2 Million portfolio like this and pay no tax at all, is that correct? That's how I work it out anyway.?

Yep, that's a pretty good example.

Also remember, from 1 July 2017 if the changes are legislated you could also put in $25k concessional contributions each (regardless of employment circumstances) and claim a tax deduction in your personal tax return to reduce the taxable income if need be.

Also once you turn 65, there is also the Senior Australian and Pensioner Tax Offset (SAPTO).

https://www.ato.gov.au/calculators-...-seniors-and-pensioner-tax-offset-calculator/

 

[Bill M]

Yep, that's a pretty good example.

Thanks Ves, then it isn't too bad is it?

 

[dyna]

As far as I can tell,the new super regime is not all that bad at all.Anyone with a few too many millions in pension phase,can schlep the excess back into an accumulation account and pay a flat tax rate of 15%,(maybe a bit less with franking credits) and just 10% CG tax.Take it out Now,and you can never get it back in...to what will still remain,one of our very best tax shelters.Copping 15% tax seems a better deal than risking it all on something else,like negative gearing.And how much longer will either side of politics be leaving that one,alone? At least after this latest budget,we can be fairly confident,it's settled for another decade or so.I'll never see another Howard or a Costello in my lifetime.Anyone crying their eyes out,today can blame those two.

 

[craft]

As far as I can tell,the new super regime is not all that bad at all.Anyone with a few too many millions in pension phase,can schlep the excess back into an accumulation account and pay a flat tax rate of 15%,(maybe a bit less with franking credits) and just 10% CG tax.Take it out Now,and you can never get it back in...to what will still remain,one of our very best tax shelters.Copping 15% tax seems a better deal than risking it all on something else,like negative gearing.And how much longer will either side of politics be leaving that one,alone? At least after this latest budget,we can be fairly confident,it's settled for another decade or so.I'll never see another Howard or a Costello in my lifetime.Anyone crying their eyes out,today can blame those two.

Leaving the excess in to get the 15% earnings rate would have to be weighted against the prohibitive taxation on death benefits in superannuation. (other structures start to look a lot better)

Adult dependents receiving inheritance from superannuation have to pay 17% (15% + Medicare) death tax - outside super it is zero. Additionally even if benefits are paid in-species to the beneficiary the fund will still be liable for 10% Capital Gains Tax. Outside super that CGT is waived for a deceased.

The 500K cap severely limits the future of the re-contribution strategy.

Stuffing money into a Multi-million dollar primary residence (Negative gearing and other non super strategies) looks far better than super for intergenerational wealth transfer. I would say the crack down on super is fairly extensive - except I doubt it will raise the government much revenue - there is no use in just blocking one hole in a leaky bucket.

Now where's my real-estate.com link for Vaulcluse; Point Piper and surrounds gone?

 

[k.smith]

Hypothetical.

Ves and others, am I right?

A couple who are both 60 or over.

Each have 100K in concessional contributions and 500K in non concessional contributions in their super.

Together it = $1.2 Million

They have a further 500K each outside of super. They do not wish to risk their returns on the 500K each more than the bond market. So lets say they get 3.5% running yields on that $1 Million.

Compulsory 4% super drawdown on $1.2 million = $42,000 P/A
3.5% on their out of super $1 Million = $35,000 P/A

Total $77,000 P/A.

As their super is untaxed after 60 all is good. The $17,500 each they make outside of super is also untaxed as it is under the tax threshold.

So in theory a couple could structure a $2.2 Million portfolio like this and pay no tax at all, is that correct? That's how I work it out anyway.?

I'm a bit with this example in relation to the budget.
Will earnings in pension accounts from which pensions are paid before age 65 (TTR pensions?) now become subject to a 15% tax or not? Or is that before age 60?

 

[Junior]

I'm a bit with this example in relation to the budget.
Will earnings in pension accounts from which pensions are paid before age 65 (TTR pensions?) now become subject to a 15% tax or not? Or is that before age 60?

If you meet a 'condition of release' (eg. retiring after preservation age, or reaching age 65) you can commence a regular account based pension. For this type of pension, earnings within the Fund will continue to be taxed at a rate of 0%.

If you commence a TTR Pension (also known as a non-commutable pension), it is proposed that earnings will be taxed at 15% - regardless of age. TTR Pensions are used where the individual is aged between preservation age and age 65, but has NOT met a condition of release. i.e. they are still working.

There is no change to the treatment of either type of pension, for income tax purposes (i.e. how the pension income is treated in the hand of the individual).

If I missed anything, please correct me.

 

[sptrawler]

The only thing I can pick from the super changes, is the $1.6million cap, will ensure in most cases the money will be spent.

Which probably isn't a bad thing, the alternative doesn't bear thinking about.

 

[SmokeyGhost]

The only thing I can pick from the super changes, is the $1.6million cap, will ensure in most cases the money will be spent.

Which probably isn't a bad thing, the alternative doesn't bear thinking about.

At a personal level, I'm not troubled by the proposals. Sure, I may have to readjust where I place my funds in order to not trigger the $1.6M cap but I'll probably invest outside of the superannuation structure.

I already do and even though I consider my gross income (consisting of an account-based pension plus dividends) to be quite high, as a result of franking credits, I still get a tax refund which is a little bizarre in my view.

Other people, however, have had their immediate plans disrupted and it must be disconcerting to them. However, I hope and assume, as happens with every change in taxation arrangements, they will adjust their financial situation to accommodate those changes. I reckon it's the only way otherwise you could just sit in a puddle of despair which is not a good way to live.

Anyways, off to have fun in the UK next Wednesday, so take care y'all.

 

[sptrawler]

At a personal level, I'm not troubled by the proposals. Sure, I may have to readjust where I place my funds in order to not trigger the $1.6M cap but I'll probably invest outside of the superannuation structure.

I already do and even though I consider my gross income (consisting of an account-based pension plus dividends) to be quite high, as a result of franking credits, I still get a tax refund which is a little bizarre in my view.

Other people, however, have had their immediate plans disrupted and it must be disconcerting to them. However, I hope and assume, as happens with every change in taxation arrangements, they will adjust their financial situation to accommodate those changes. I reckon it's the only way otherwise you could just sit in a puddle of despair which is not a good way to live.

Anyways, off to have fun in the UK next Wednesday, so take care y'all.

Have a great trip.

 

[sptrawler]

See Michael Pascoe, has popped his head up, to make a headline.

http://www.smh.com.au/business/the-economy/more-superannuation-changes-to-come-20160512-got6fr.html

Shame his article is about as useful as t*** on a bull, as usual.

The info our learned members, post on this forum, is far better value. IMO

 

[Junior]

See Michael Pascoe, has popped his head up, to make a headline.

http://www.smh.com.au/business/the-economy/more-superannuation-changes-to-come-20160512-got6fr.html

Shame his article is about as useful as t*** on a bull, as usual.

The info our learned members, post on this forum, is far better value. IMO

Not much new info there, although I do agree with his comment that the Lifetime Cap will be altered in the short term.

Turnbull has shown he's willing to backtrack and willing to succumb to pressure, like Abbott before him. I think the cap will be raised or postponed.....or if Shorten wins it will be scrapped altogether. I think it's inconsistent to support a $1.6mill balance but restrict contributions to the point where it's almost impossible to get there - unless you have a long working life and markets perform well.

 

[piggybank]

Hi,

I am looking for some advice to a simple question (and Yes I only ask simple questions)

Q) If you were 58 years old (presently unemployed and not employable) additionally you cannot claim any pension, etc until you are 67, do you think putting $15-20.000 into your superannuation would be a good idea rather than having it presently sitting in a bank account?

If you did, would you have to pay tax on it now, or when you claim it?
Or is there a better alternative - not including the share market directly?

Any feedback would be much appreciated

Regards
PB

 

[Junior]

Hi,

I am looking for some advice to a simple question (and Yes I only ask simple questions)

Q) If you were 58 years old (presently unemployed and not employable) additionally you cannot claim any pension, etc until you are 67, do you think putting $15-20.000 into your superannuation would be a good idea rather than having it presently sitting in a bank account?

If you did, would you have to pay tax on it now, or when you claim it?
Or is there a better alternative - not including the share market directly?

Any feedback would be much appreciated

Regards
PB

With this sort of question, there are a number of considerations to take into account. It depends on your personal situation. We cannot give personal financial advice on this forum.

General comments relating to this issue:

If you do not have much in the way of financial assets outside of super (and are unlikely to receive any major financial windfalls in future), there is no major advantage to be gained by contributing $20,000 into super.

As has been discussed in this thread previously. If you are retired and have no other income, you can hold a fair sum of cash in your personal name before you're likely to pay much tax on the income generated.

For example if you have $300,000 in cash earning 3% interest. This equates to income of $9,000 per annum - well under the tax-free threshold, and therefore no income tax payable. If these funds were in super, earnings tax would be levied at 15% on the full $9,000.

 

[sptrawler]

Hi,

I am looking for some advice to a simple question (and Yes I only ask simple questions)

Q) If you were 58 years old (presently unemployed and not employable) additionally you cannot claim any pension, etc until you are 67, do you think putting $15-20.000 into your superannuation would be a good idea rather than having it presently sitting in a bank account?

If you did, would you have to pay tax on it now, or when you claim it?
Or is there a better alternative - not including the share market directly?

Any feedback would be much appreciated

Regards
PB

IMO, Junior gave you a great reply.

 

[CanOz]

Just came across the tweet deck...

Yes, it's that desperate "Queensland to raid public servant super to pay down debt" #qldpol #auspol afr.com/news/politics/…