Superannuation, the ultimate government cash cow?

[SmokeyGhost]

I still have the view it doesn't matter if retirement income is derived from the superannuation structure or outside of it.

While it may not be concessionaly taxed, at least outside, the assets are not required to be priced once a year and all the other imposts imposed on a SMSF. Rough calculation is (assuming it's mainly franked dividends) you'd have to have an income of around $60k before any additional tax is paid.

About a third of my income is received in that manner and yet I received a rather substantial (comparatively) tax refund last week over the $5k mark. Not really fussed if I have to pay tax actually as I'd still keep a whacking great proportion of my income. Knowing how to budget comes in handy though for me.

 

[SmokeyGhost]

Yes, no, yes, no?

Arrrgh, business as usual. Carry on.

http://sjm.ministers.treasury.gov.au/media-release/096-2016/

http://treasury.gov.au/SuperReforms

 

[Bill M]

Yes, no, yes, no?

I think the changes to the 500K lifetime cap is good and fair. It kind of strikes a happy medium between what we now have and what they proposed in May. We can actually get to that $1.6 Million under the new proposal. It is a common sense approach.

 

[SmokeyGhost]

Possibly but I tend to muse sometimes about the 95% who, in all likelihood, haven't a hope of getting anywhere near $1.6M. Where is their share of the superannuation largesse? But who cares about those losers anyway?

Then again, that's just me.

 

[craft]

I think the changes to the 500K lifetime cap is good and fair. It kind of strikes a happy medium between what we now have and what they proposed in May. We can actually get to that $1.6 Million under the new proposal. It is a common sense approach.

I think it’s unequitable.

Prior to the change My wife and I would both have each had the $500k Un-deductable life time cap just like everybody else. Our total Un-deducted contributions ever made = $46,922 and that was prior to 2007.

With the change we cannot put anymore in.

Where the inequity lies is in how superannuation is taxed on death. Had we retained the 500K lifetime limit we could have withdrawn and re-contributed after preservation age with the corresponding advantages of how un-deducted contributions are taxed on death.

Those rich outside super and leaving things to the last minute inside super will be able to amass heaps of un-deducted contributions in the system as part of their 1.6M, whilst those who believed that the government wouldn’t disadvantage those inside super compared to those outside have been screwed.

I never expected that super wouldn’t be tightened and actively promoted that it be so but never thought those inside super would be treated worse than those outside. McLovin was right – Super is dangerous. If I can be screwed so can you. My view has changed from being a supporter of super to one of utmost contempt. To the extent I can avoid it I will never put another cent in. The precedents set – what’s to stop them upping preservation age, only allowing annuities and taxing the crap out of it. Even if you think your safe because you’re close to preservation age – one sweep of the pen and you are as captive as I am to inequitable decisions.

Much better to build your wealth outside super and take a risk reward gamble as to whether it’s worth exploiting it at the last minute – in reality probably isn’t even worth that risk.

 

[SmokeyGhost]

My view is I don't give a toss if my beneficiaries are taxed on assets they inherit. They didn't contribute one cent of their income in order to accumulate assets I have acquired. On that basis, so what if they, or my estate, is required to pay tax? They will receive, say, 85% of the the assets rather than 100% which I don't think is a bad result. ****, I wouldn't object to receiving $425,000 from somebody else, especially if I didn't pay to obtain it. The reality is, before my death, they currently have zero so I cannot see justification to whinge about receiving $425k instead of $500k.

Same attitude with the "family" home. Their names were not on the mortgage or the title deed, they didn't pay off the house, made no payment to rates, insurance, maintenance, etc. They never owned it, just lived in it for a period.

So as far as I am concerned, I will live in MY home for as long as possible and do what I will with it, use the income from MY assets as I wish and, on my demise, my children will receive whatever assets are left after taxes, if any, are paid.

 

[Junior]

I think it’s unequitable.

Prior to the change My wife and I would both have each had the $500k Un-deductable life time cap just like everybody else. Our total Un-deducted contributions ever made = $46,922 and that was prior to 2007.

With the change we cannot put anymore in.

Where the inequity lies is in how superannuation is taxed on death. Had we retained the 500K lifetime limit we could have withdrawn and re-contributed after preservation age with the corresponding advantages of how un-deducted contributions are taxed on death.

Those rich outside super and leaving things to the last minute inside super will be able to amass heaps of un-deducted contributions in the system as part of their 1.6M, whilst those who believed that the government wouldn’t disadvantage those inside super compared to those outside have been screwed.

I never expected that super wouldn’t be tightened and actively promoted that it be so but never thought those inside super would be treated worse than those outside. McLovin was right – Super is dangerous. If I can be screwed so can you. My view has changed from being a supporter of super to one of utmost contempt. To the extent I can avoid it I will never put another cent in. The precedents set – what’s to stop them upping preservation age, only allowing annuities and taxing the crap out of it. Even if you think your safe because you’re close to preservation age – one sweep of the pen and you are as captive as I am to inequitable decisions.

Much better to build your wealth outside super and take a risk reward gamble as to whether it’s worth exploiting it at the last minute – in reality probably isn’t even worth that risk.

The maximum tax rate in super still hasn't changed at 15%.

For a retired couple you can hold $3.2million dollars in super and pay zero earnings tax or CGT.

You would pay death taxes because you obtained a tax deduction for those contributions in the first place, when they were made, right? The withdrawal and re-contribution strategy is really just a loophole, so these changes go some way to closing that loophole.

It should be mentioned, that you can still contribute $300k in a lump sum or $600k for a couple - with bring forward provisions.

It's still by far the most tax-effective structure available.

 

[Ves]

I think it’s unequitable.

Prior to the change My wife and I would both have each had the $500k Un-deductable life time cap just like everybody else. Our total Un-deducted contributions ever made = $46,922 and that was prior to 2007.

Those rich outside super and leaving things to the last minute inside super will be able to amass heaps of un-deducted contributions in the system as part of their 1.6M, whilst those who believed that the government wouldn’t disadvantage those inside super compared to those outside have been screwed.

Obviously it's pretty hard to nut this out before the final legislation is drafted and passed, but...

Those were my first thoughts when reading the press release yesterday. It's absolutely bizarre that they have gone away from a flat-cap to a cap that is determined by your balance.

There is also another problem with linking the cap to an account balance. This is because it's a moving target (unless there is some mechanism that sets even this in stone). Makes it fairly hard to plan a few years ahead.

An account balance is just a representation of the member's share of the current market values of the Fund's assets. If these assets are not readily traded on a liquid market (ie. property, unlisted shares) then they are probably open to a degree of manipulation by clever trustees and their accountants. I've seen this done before for in-house assets thresholds etc. Maybe it's not really common, and it's probably situational, but it's still a loop-hole if they don't cover it.

Interesting times...

 

[craft]

The maximum tax rate in super still hasn't changed at 15%.

For a retired couple you can hold $3.2million dollars in super and pay zero earnings tax or CGT.

You would pay death taxes because you obtained a tax deduction for those contributions in the first place, when they were made, right? The withdrawal and re-contribution strategy is really just a loophole, so these changes go some way to closing that loophole.

It should be mentioned, that you can still contribute $300k in a lump sum or $600k for a couple - with bring forward provisions.

It's still by far the most tax-effective structure available.

It's the potential make up of the 3.2m which is my bone of contention. The young craft family, typical workers who sacrificed (and not just in the salary sacrifice meaning of the term) when they had stuff all so that they could eventually self fund retirement, who is pissed. Who would have know what the eventual earnings rate would be, certainly would have been imprudent to plan on it. I seriously doubt we actually got much/any contribution savings, the salaries were crap and there was no LITO back then - I don't mind the death tax on funds from contributions and certainly earnings - but I do mind that the dutiful and diligent craft back then is penalised on the construction of the 3.2 because he can't put in any further un-deducted contributions. where as the non- diligent who never planned for retirement and may receive an inheritance, make a windfall on the tax exempt primary income or whatever lurk they are into can wack in heaps of uneducated contributions late in the piece and not face the same death tax implications.

Any rate craft now is not the craft from back then. I can now just screw them back in so many ways because I now have the wherewithal to do it. Dropping a lazy Mill during the transition with the current 180K limit and bring forward is nothing if I desire and it matches the 500K lifetime cap but that's not the point.

The egalitarian aspirations I thought I shared with the country just took another kick in the **** and most won't even see it.

Hell I bet Smoky who is railing against inheritance doesn't see the improved advantages for the inheritance class that are present in this change over your typical working class.

The original changes proposed and taken to the election as iron clad overall seemed to be a pretty equitable attempt to reign in the system - but this bastardisation by the political class to suit a few who have wealth outside that they want to shield inside without death tax duties.......

Rant over for it doesn't matter, A contemptuous craft playing by the letter of the law will save millions in tax going forward over a naïve craft who played to the spirit of the law. Who really wins who really losses?

 

[Junior]

It's the potential make up of the 3.2m which is my bone of contention. The young craft family, typical workers who sacrificed (and not just in the salary sacrifice meaning of the term) when they had stuff all so that they could eventually self fund retirement, who is pissed. Who would have know what the eventual earnings rate would be, certainly would have been imprudent to plan on it. I seriously doubt we actually got much/any contribution savings, the salaries were crap and there was no LITO back then - I don't mind the death tax on funds from contributions and certainly earnings - but I do mind that the dutiful and diligent craft back then is penalised on the construction of the 3.2 because he can't put in any further un-deducted contributions. where as the non- diligent who never planned for retirement and may receive an inheritance, make a windfall on the tax exempt primary income or whatever lurk they are into can wack in heaps of uneducated contributions late in the piece and not face the same death tax implications.

Any rate craft now is not the craft from back then. I can now just screw them back in so many ways because I now have the wherewithal to do it. Dropping a lazy Mill during the transition with the current 180K limit and bring forward is nothing if I desire and it matches the 500K lifetime cap but that's not the point.

The egalitarian aspirations I thought I shared with the country just took another kick in the **** and most won't even see it.

Hell I bet Smoky who is railing against inheritance doesn't see the improved advantages for the inheritance class that are present in this change over your typical working class.

The original changes proposed and taken to the election as iron clad overall seemed to be a pretty equitable attempt to reign in the system - but this bastardisation by the political class to suit a few who have wealth outside that they want to shield inside without death tax duties.......

Rant over for it doesn't matter, A contemptuous craft playing by the letter of the law will save millions in tax going forward over a naïve craft who played to the spirit of the law. Who really wins who really losses?

I agree, that the constant rule changes and lack of grandfathering is not fair on those who have planned ahead and played by the rules of the day.

However, by having $3mill+ in super plus many millions outside of super, you are in the top 1% of Aussies and probably the top 0.1% globally, so I hope you don't lose sleep over the government taking a small slice of your wealth after you are gone from this earth!

The hint at allowing a new breed of annuity style retirement products with favourable tax treatment, means that new strategies and planning opportunities may also present themselves in coming years. I attended a Challenger Financial event last week, and they were very excited by this prospect.

 

[craft]

I agree, that the constant rule changes and lack of grandfathering is not fair on those who have planned ahead and played by the rules of the day.

However, by having $3mill+ in super plus many millions outside of super, you are in the top 1% of Aussies and probably the top 0.1% globally, so I hope you don't lose sleep over the government taking a small slice of your wealth after you are gone from this earth!

The hint at allowing a new breed of annuity style retirement products with favourable tax treatment, means that new strategies and planning opportunities may also present themselves in coming years. I attended a Challenger Financial event last week, and they were very excited by this prospect.

You still miss the point. Current situation craft will obviously do just fine and so will all the other schmucks like me - didn't you just see us corrupt the political system to further wealth inequality.

I have no doubt there will be endless planning opportunities - again do you miss the point.

The old craft and the millions of diligent workers/savers like him just got a little more screwed and no planning opportunities are going to help them. If you can't jump the divide, Australia is quickly becoming no better than US for the working class - and god help us, we'll probably end up with our own Trump exploiting the suppression.

 

[qldfrog]

A contemptuous craft playing by the letter of the law will save millions in tax going forward over a naïve craft who played to the spirit of the law. Who really wins who really losses?

I made sadly the same conclusion after years of being slugged at 45/50% tax rate;
and fed up by both lib.ALP attitude; so now, family trust, etc etc the usual panoply including property investment ; stopped full time work..and same amount of money at the end of the year with so much better life..only so much you can do fighting a system on ideological idea of fairness, right and wrong.
but i still do not touch super beyond mandatory contributions: as people are dis-associated with their super until their later years, i see super as the first target from government ruled disappropriation in case of /when next crisis hits], even before cash or your bank accounts "a la Cyprus" confistication (sp?)

 

[sptrawler]

Sadly, I must confess, I thought the Labor idea of taxing the earnings above a certain amount was more flexible and manageable.
Just tax earnings above $x at 15% and if they are earning ridiculous income, tax it at 30%, simple.
Shame politicians haven't got the the brains, to overcome their egos.

The brain fart of a limit you can have in super and anything above that has to be removed, is dumb.IMO

Changing the concept to that degree, undermines the initial sales pitch, where you were encouraged to put away as much as possible.

What about people who squirreled away as much as possible, sold family assets etc, now have to remove the money, bet they can't buy the assets back for what they sold them for.

It will infuriate a lot of people.IMO

Dumb politics, silly Billy will be rubbing his hands with glee.

Labor will hit them over their heads with the policy, why put a cap on now, then what happens if the market or inflation takes off, change the cap? press the panic button? lol

With Labors idea, you just move the thresholds and tax impost, much neater and easier.lol

It's a win, win for Labor. Malcolm shafts his voters, then Bill comes in and adds a bit.lol

Malcolm will look like a goose.IMO

 

[sptrawler]

Also, of course, there is the hypocritical aspect of the politicians saying it only affects the top 4% of people.

Well if $1.6 million at 5%, which equates to $80,000/p.a, is the top 4%.

Where does it put their pensions, of between $200,000 and $300,000/p.a, right up there in the trough.

Is there any wonder Pauline and Donald are polling well, voters are pizzed off.

 

[Vixs]

Also, of course, there is the hypocritical aspect of the politicians saying it only affects the top 4% of people.

Well if $1.6 million at 5%, which equates to $80,000/p.a, is the top 4%.

Every time someone talks about rates of return with super without fail they seem fixated on how much income they can get, never any discussion about drawing down capital. At 5% p.a. drawing $80,000 p.a. $1.6m would last 62 YEARS and pay out a total of $4,960,000 in that time before being exhausted. If you wanted to have your funds last say 30 years, you could take a tax free income of $104,000 p.a. from your $1.6m if you are achieving a 5% return. If you are in a position to meet your own financial needs and want to go and leave your kids $1.6m from your pension as well, then I think it's fair to say you can afford to pay some tax.

Where does it put their pensions, of between $200,000 and $300,000/p.a, right up there in the trough.

sptrawler have you read the MP superannuation scheme info? No one elected after 2004 gets anything like you're talking about, they have a defined contribution scheme not a defined benefit. The politicians still serving that were in before 2004 will still get access to a lifetime pension, but unless they were a PM/Deputy/Treasurer they're not going to be entitled to several hundred thousand dollars per year. Members that served 18+ years get 75% of their salaries and those that served shorter terms get as little as 50%, but that is all taxable income. Still generous but hardly to the extent you're talking about.

I'm hardly one to go into bat for politician pay and perks, but the poli's super is very similar to you or I, with their balance determined by fund performance and contributions.

Is there any wonder Pauline and Donald are polling well, voters are pizzed off.

As with much of the outrage these days, unfortunately it is rarely backed by information and understanding. There's more tantrum-throwing than informed decision-making going on.

------------------------

I appreciate the concern of people like you sptrawler that feel like they've been shafted by moving goalposts, but the reality is there is still the potential between a superannuation pension, the tax-free threshold, the Low-Income Tax Offset and the Senior And Pensioners Tax Offset for an individual to receive well over $100,000 in tax free income BEFORE ANY CAPITAL IS SPENT to support themselves in retirement.

With the superannuation changes, I'm disappointed the $500k cap went and the work test for 65-74 year olds got scrapped. Fat cats win, hard working people at the lower end of the scale lose again. If I look at my own mum for example, she doesn't want to sell her house for another few years before downsizing. Unfortunately, unless she wants to go back to work every year after permanently retiring she will now be unable to get that money into superannuation. This is her only meaningful financial asset and will be funding her retirement, yet she will have to invest the money outside super because her ability to put it in was bargained away to ensure the wealthy can still build up multi-million dollar accounts as a tax shelter.

They were originally gutsy changes to reform a system that had previously been too generous, and some of the most important elements were watered down. I still think it will be in a better position than it was previously, but I wonder if there will ever be another opportunity to fix some of the unintended or unforeseen consequences.

 

[Junior]

Great post Vixs. The system still offers very low tax rates for all those over 60. To say you shouldn't put any money in super because the rules will change is over the top.

As I've said many times, the tax rates are FAR LOWER than any other tax structure available.

Company tax rate 30%,
individual tax rates up to 49%,
super (accum) 15%,
super (pension) 0%

 

[sptrawler]

Good post Vix, I guess I just needed a reality check.:1zhelp:

 

[qldfrog]

Great post Vixs. The system still offers very low tax rates for all those over 60. To say you shouldn't put any money in super because the rules will change is over the top.

I would argue vehemently on that one when the (current) age for your retirement is 15 or 20y away; what do you think will happen to super at the next GFC/serious crisis?
if you are sixty today, sure put as much as possible, if you are 30 or 40,imho run like hell...

 

[Junior]

I would argue vehemently on that one when the (current) age for your retirement is 15 or 20y away; what do you think will happen to super at the next GFC/serious crisis?
if you are sixty today, sure put as much as possible, if you are 30 or 40,imho run like hell...

Yes, on that kind of timeframe I do agree with you. Never know who will come into power.

 

[Vixs]

Good post Vix, I guess I just needed a reality check.:1zhelp:

The point of a forum is different perspectives. I think about things a lot differently now than I did a few years ago.