Superannuation, the ultimate government cash cow?

[sptrawler]

If the SMSF is being run as a 'pooled' fund then they could simply reduce the pension balance to $1.6mill and retain the rest as accumulation, and therefore retain all properties. If there is more than 1 member, remember it's $1.6mill per person, so $3.2mill in total for a couple.

If the assets are 'segregated', i.e. each asset is assigned to a particular member then it can be more complicated.

But retaining the properties in the accumulation phase, means any income is taxed at 15% and you can't improve the property.
Sounds a bit like a hole for money, unless the land value is a raging bull.
In the accumulation phase, all profit is taxed at 15%, from my understanding.

 

[Toyota Lexcen]

In W.A they are even talking about taking the seniors card off self funded retirees, why would you bother saving for retirement?
If a blue collar working couple saved and paid of their house, then went without to save $800k, they get no pension. But earn approx $24,000 from interest.
If the same couple pay off their house, then have holidays to Bali, buy the HSV, Ford Ranger and caravan, but only save $300k for their retirement.
That's o.k because they get $9,000 interest and $34,000 pension.
It's a no brainer, unless I've got something wrong.

hi,

as the pension gets pushed out further and further that model not so applicable?

 

[Junior]

But retaining the properties in the accumulation phase, means any income is taxed at 15% and you can't improve the property.
Sounds a bit like a hole for money, unless the land value is a raging bull.
In the accumulation phase, all profit is taxed at 15%, from my understanding.

If the assets of the SMSF are pooled, then the property would be partially in accumulation and partially in pension phase. The proportion of net rental income and any capital gain deemed to be a part of the accumulation account, would be taxed at 15% earnings rate (for CGT there is a 1/3rd discount, so taxed at 10%).

There are situations where 'CGT Rollover Relief' is available. This is for some funds that had more than $1.6mill in pension phase at 1/7/2017. The assets which are rolled back to accumulation phase can opt to have the cost base reset.....so they don't lose the tax benefits of having been in pension phase before the rules changed.

It's complicated.

 

[craft]

Hi Junior

Quick qustion if I could.
I think I read somwhere that they were proposing that if a SMSF had a member with funds above the cap in retirement phase the SMSF would not be able to use segregation method. An integrety measure.

Did that get implemented?

 

[Ves]

Quick qustion if I could.
I think I read somwhere that they were proposing that if a SMSF had a member with funds above the cap in retirement phase the SMSF would not be able to use segregation method. An integrety measure.

Did that get implemented?

Yes it did. If a member in the SMSF has a total superannuation balance over $1.6mil and is receiving a pension in any Fund then the segregated method cannot be used to calculate the exempt current pension income for any Fund in which they are a member.

However, there is probably an argument that you could still allocate specific assets to each member in order to calculate member earnings in the Fund's accounts if the trust deed allows it. Which would be handy for SMSFs with members that have different investment profiles etc.

Interesting example: If a member has a total superannuation balance exceeding $1.6 million (most of it in his/her own SMSF) and is receiving a pension from any Fund, but they had a nominal accumulation balance of say $1,000 in another family member's SMSF, then that SMSF would not able to adopt the segregated method to calculate ECPI, even if the pension member's balances were all under $1.6 million in that SMSF.

This is probably academic though, as in my experience, most SMSFs just get an actuarial certificate and don't bother with segregation if they have a mix of accumulation and pension, as it is quite complicated and/or expensive to administer.

 

[craft]

Yes it did. If a member in the SMSF has a total superannuation balance over $1.6mil and is receiving a pension in any Fund then the segregated method cannot be used to calculate the exempt current pension income for any Fund in which they are a member.

However, there is probably an argument that you could still allocate specific assets to each member in order to calculate member earnings in the Fund's accounts if the trust deed allows it. Which would be handy for SMSFs with members that have different investment profiles etc.

Interesting example: If a member has a total superannuation balance exceeding $1.6 million (most of it in his/her own SMSF) and is receiving a pension from any Fund, but they had a nominal accumulation balance of say $1,000 in another family member's SMSF, then that SMSF would not able to adopt the segregated method to calculate ECPI, even if the pension member's balances were all under $1.6 million in that SMSF.

This is probably academic though, as in my experience, most SMSFs just get an actuarial certificate and don't bother with segregation if they have a mix of accumulation and pension, as it is quite complicated and/or expensive to administer.

Thanks Ves


As an Integrity measure its quite effective.

Kills any idea of having those assets with large unrealised capital gains make up the assets below the cap.

No transition arrangement to reset cost base for those not of yet of retirement age. So historical capital gains will be taxed under new regime. retrospective?????

The joys of being the wrong demographic.

 

[Ves]

Thanks Ves


As an Integrity measure its quite effective.

Kills any idea of having those assets with large unrealised capital gains make up the assets below the cap.

No transition arrangement to reset cost base for those not of yet of retirement age. So historical capital gains will be taxed under new regime. retrospective?????

The joys of being the wrong demographic.

The only other option to create 'segregation' for tax purposes is to house different assets in multiple SMSFs (ie. pension up to cap in one SMSF and accumulation assets in another). That option doesn't help those who are only in accumulation phase and are stuck with large unrealised CGT burdens though because any sort of restructuring is most likely going to trigger CGT events. Although, if you have a crystal ball, and are just starting out from a fresh CGT position, it might work somewhere down the track, but most people won't ever exceed the cap so it's a niche strategy.

 

[Belli]

Maybe the title of this tread should be changed to "the ultimate cash-cow for anybody but you."

I've always been suspicious of claims by the superannuation industry about how much is needed in retirement.

I reckon these articles add to the confusion somewhat.

http://www.smh.com.au/money/super-a...s-comfortable-retirement-20170713-gxawho.html

http://www.smh.com.au/money/plannin...not-as-dire-as-you-think-20170707-gx76ax.html

http://www.smh.com.au/money/super-a...obbys-field-of-straw-men-20170717-gxd2ra.html

So my view is, unless your prepared to sit down and really think about it, attempting to ignore or at least critically assess comments from potentially vested interest groups, you could be forevermore going round in circles and never being able to make a decision which is right for you and no one else. Or you could easily stuff it all up by following the "experts."

It took me quite a while to decide on a path. It may not be the one others would say is correct but then my circumstances are different to there's and, as a consequence, their opinions are not necessarily relevant and become part of the white noise which seems to surround financial matters.

 

[Junior]

How much you need for retirement varies greatly between individuals, based on your circumstances, and also with an unknown element (i.e. how long will you live for?).

Some couple only need $375,000 in savings and a debt-free home (income of say $20k from super and $34k age pension = enough to get by).

Other couples will say they need income of $100k per annum to be comfortable, plus want to help out the kids, buy a new car, do home reno's and a big o/s holiday. In that case they might need $3mill.

Careful planning is key.

 

[Belli]

How much you need for retirement varies greatly between individuals, based on your circumstances, and also with an unknown element (i.e. how long will you live for?).

Some couple only need $375,000 in savings and a debt-free home (income of say $20k from super and $34k age pension = enough to get by).

Other couples will say they need income of $100k per annum to be comfortable, plus want to help out the kids, buy a new car, do home reno's and a big o/s holiday. In that case they might need $3mill.

Careful planning is key.

Therein lies one of the problems, Junior. Planning by whom? Merely following a plan devised by the planner or developing at least an outline of a plan first then seeking advice and possible adjustment to achieve the best possible outcome?

 

[Junior]

Yes, a good financial adviser will do this.

A qualified & competent financial adviser will put together a comprehensive plan which takes all factors into account. This plan then needs to be monitored and reviewed every year.

Many on this forum would prefer to DIY.

The other alternative is what most aussies do, don't really think about it until it's too late, run out of savings a few years into retirement and then get by on Centrelink Age Pension!

 

[sptrawler]

Yes, a good financial adviser will do this.

A qualified & competent financial adviser will put together a comprehensive plan which takes all factors into account. This plan then needs to be monitored and reviewed every year.

Many on this forum would prefer to DIY.

The other alternative is what most aussies do, don't really think about it until it's too late, run out of savings a few years into retirement and then get by on Centrelink Age Pension!

The underlying problem is, finding a qualified and competent financial adviser, they don't wear a badge.
Therefore it is simpler and less stressfull to do it yourself, I find.
My costs are less than $1,000, which is a lot less than a friend of mine who has a similar size fund and is self managed, his are $5,000.

 

[Junior]

sptrawler, if you have the time, inclination and knowledge to DIY then go for it. Many aren't capable or would prefer to outsource to a professional and have a 3rd party who they can bounce ideas off of along the way.

You are right in regards to finding the right adviser. It can be very very costly if you get this wrong!

 

[sptrawler]

sptrawler, if you have the time, inclination and knowledge to DIY then go for it. Many aren't capable or would prefer to outsource to a professional and have a 3rd party who they can bounce ideas off of along the way.

You are right in regards to finding the right adviser. It can be very very costly if you get this wrong!

Just received my EOFY accounting, thumbs up all good. yeh

Now I read snippets on the net, about Labor re introducing death duties, that will spin out gen x,y and z. lol

They think house prices are a problem, wait till they find out that they will have to pay tax, on what their parents leave them.
If it's like the U.K it is 40% above a certain amount.

https://www.gov.uk/inheritance-tax/overview

 

[Wysiwyg]

Superannuation, the ultimate Fund Manager/Brokerage Firm cash cow.

Just realised after buying some shares in my Super fund that fees and brokerage have gone up > 50%. That is blatant (legal) theft and I am now considering switching funds. Not friggin happy.

 

[sptrawler]

Who is that with Wysiwyg?

 

[Belli]

One slight overlay could also be an additional administrative requirement with some share registries.

Yesterday I logged in for my smsf to check the tax file number had been recorded for a new holding I had added - I've noticed on previous occasions it doesn't happen automatically. I was surprised when a notice came up that I was required to self-certify under the foreign account tax compliance tax.

A little more research indicates this will probably flow through to all financial accounts, e.g. bank accounts, and also apply to share holdings including those for individuals, trusts, blah, blah, blah.

So if you weren't aware about it you soon could be.

 

[Wysiwyg]

Who is that with Wysiwyg?

They told me an e-mail was sent regarding the changes. I received no e-mail regarding admin. fee and brokerage increases. I noticed the transaction charges on the last two purchases were higher than usual so I called and they guided me online through some secret doorways to where the information lay in black and white.

 

[Belli]

As my financial arrangements are simple, on Friday I received the details of EOY costs and tax estimate. Including the super levy, accounting/advice fees, tax payable the overall cost was 0.8% of assets and excluding super levy and tax it was 0.5% of assets. No much of an idea, and I'm too lazy to find out, how it compares to elsewhere but I'm pretty comfortable with the matter. It doesn't include any refund of franking.

 

[sptrawler]

Interesting reading today, that there is a suggestion the Government should take over the administration of compulsory super, we talked about this on the forum years ago.
Funny how history repeats, we said it would, RIP Julia.