Superannuation Discussion + market volatility

[andye]

Assets outside of super like real estate - there is no tax on unrealised CG.
Except for land tax - interestingly enough it is actually a tax on unrealised capital gains but it is certainly not 15%.

Yes but outside super, you'd still be up for marginal tax on dividend/rental income and 22.5% CGT when you sell.

I'm not sure 100% how CGT works currently inside super for property if you
(a) sell asset in retirement phase (?10% if held over a year or 0%)
(b) die and give to inheritors ( presumably15% if not spouse/minor children when it is 0% but is this any different for property that isnt immediately sold)
(c) die and retain property in an SMSF of which the inheritors are members

I personally don't like the idea of taxing unrealised gains but (unless there is a way of avoiding any tax or paying less tax in the future) isn''t it largely a cashflow issue as presumably if it later loses value, you'd get a deduction.

Can see how this would be particularly inconvenient with property (a) as investment is illiquid and likely leveraged and (b) often property is held onto through generations (so any CGT on realised gains can take a very long time to reach Treasury)

 

[Quickstatus]

Yes but outside super, you'd still be up for marginal tax on dividend/rental income and 22.5% CGT when you sell.

Remember that the TBC defines the amount that is tax free in pension phase. The rest is in accumulation is taxed at 15% +/- unrealised capital gains tax 15%.

you'd get a deduction.

The sting is (as I understand it) that Labor has said negative gain is not deductible.

It's too murky at the moment. But waiting for to to come up with the draft legislation is very risky

 

[andye]

Remember that the TBC defines the amount that is tax free in pension phase. The rest is in accumulation is taxed at 15% +/- unrealised capital gains tax 15%.

Definitely aware that you pay 15% on dividends etc in the accumulation accounts pre and post retirement.

A question I have is do you pay CGT if you sell an asset from accumulation once retired (I understand the rate is 10% for an asset held for over one year from an accumulation account pre-retirement).

Even if so, this is still conderably less than outside of super (though you would be able to only deduct 15% rather than marginal rate from property loan repayments along the way)

 

[andye]

...The sting is (as I understand it) that Labor has said negative gain is not deductible.

It's too murky at the moment. But waiting for to to come up with the draft legislation is very ririsky

That lacks logic and fairness.

....

I do have a feeling that there must be a big tax advantage (rather than merely opposition to the principle of taxing unrealised gains) in keeping things as they are, to explain the vociferousness of the opposition to the proposed changes.

 

[Quickstatus]

A question I have is do you pay CGT if you sell an asset from accumulation once retired

Don't know. But Twhatever it is they want it to be unrealised CG - which means you pay 15% every year

 

[andye]

Don't know. But Twhatever it is they want it to be unrealised CG - which means you pay 15% every year

I meant currently

 

[Quickstatus]

Don't know what the rules are for current CGT in super but whatever it is it is only taxed when realised - ie you have the funds to pay it.

 

[SYD]

Assets outside of super like real estate - there is no tax on unrealised CG.
Except for land tax - interestingly enough it is actually a tax on unrealised capital gains but it is certainly not 15%.

Yep, rather than encouraging retirees to downsize and free up family homes for young families, an unintended consequence could see retirees buy bigger properties and/or do improvements to existing homes - all of which is CGT exempt…. Maybe even buy property OS where there’s sympathetic rules.

 

[openseat]

It's been supported mainly by the industry superfunds. It's aimed directly at SMSF

b@st@rds

 

[andye]

I think I worked out how it goes (happy to be corrected as not a tax expert).

Say: in their Joint SMSF Mr & Mrs Affluent have a Total Super Balance of $10M with $5M in property. They each have $2M in retirement accounts a few years after they retire. The remaining $6M is in accumulation.

They sell one of the properties (bought for $750k) for $1.5M. The CGT on the gain is allocated in proportion to the accumulation and retirement accounts. In this case 60% at the accumulation CGT of 10% and 40% at the retirement CGT of 0%.
So overall the CGT payable at realisation of the property is 6%.

If I'm right, I'm not surprised there has been a lot of lobbying to avoid paying a proposed 30% tax on unrealised gains.

 

[burmans]

Actually I think there has been a fair bit of comment and lobbying on this but can I just point out that in the case you have provided the gain has been realised. Most of the concern has been about how you revalue (and costs to do so) each year and then fund tax on an unrealised gain, what to do with capital losses etc.

But I guess this hasn't gained much traction except for those for whom this will be a problem and that isn't your average punter.

 

[CaptJCool]

Yeah apparently 0.5% of superannuats and notwithstanding the unrealised gain has no obvious “cashflow” you are expected to pay it

On the flip side, if it’s a capital loss, you are expected to “pay for it” as you can ONLY claim it against future gains - no ability to offset it against the same years tax….

Losses per se are in the scheme of things few and far between but they do happen.

It’s a real rich persons first world problem.

 

[andye]

Actually I think there has been a fair bit of comment and lobbying on this but can I just point out that in the case you have provided the gain has been realised. Most of the concern has been about how you revalue (and costs to do so) each year and then fund tax on an unrealised gain, what to do with capital losses etc.

But I guess this hasn't gained much traction except for those for whom this will be a problem and that isn't your average punter.

I agree that taxing unrealised gains is problematic and personally don't agree with the principle.

Howver, I'm sure the vociferousness is driven heavily by the ultimate tax outcome (which I imagine is understood by even fewer than the 0.5% who could get caught up in it)

 

[CaptJCool]

I agree that taxing unrealised gains is problematic and personally don't agree with the principle.

Howver, I'm sure the vociferousness is driven heavily by the ultimate tax outcome (which I imagine is understood by even fewer than the 0.5% who could get caught up in it)

Yeah

It’s to push $$ and assets out of super into ordinary income elsewhere.

In any event if you got more than $6 million tied up in the low tax vehicle. You can afford to pay more taxes

 

[Quickstatus]

And likely Labor + greens will have majority in both houses.

 

[Quickstatus]

It’s to push $$ and assets out of super into ordinary income elsewhere.

There are easier ways to do that rather than tax unrealised gains

Legislate that as soon as a pension account is created, any residual accumulation account is automatically removed from the Superannuation system.

 

[andye]

There are easier ways to do that rather than tax unrealised gains

1). Legislate that as soon as a pension fund is created, any residual accumulation account is automatically removed from the Superannuation system.

Am alternative is to tax all (from pension or accumulation) withdrawals for people with TSB above a limit ($3M say but could make a case for marginal above $1.9M). Would affect the deathbed withdrawal strategy for big balances too.

 

[Quickstatus]

Better still reduce spending......

 

[burmans]

I agree that taxing unrealised gains is problematic and personally don't agree with the principle.

Howver, I'm sure the vociferousness is driven heavily by the ultimate tax outcome (which I imagine is understood by even fewer than the 0.5% who could get caught up in it)

Yes, I'm certainly not opposed in principle to this change, given the purpose of super is to fund retirement (not pass on to your kids/grandkids). I think that some of the changes under John Howard incredibly benefit me (and other) retirees over those still working (e.g. my kids and partners) so have always though that this system which overly benefits retirees wouldn't last in full. As such this is IMO a pretty mild adjustment.

But like you not in favour of taxing unrealised gains, and the other bit which I actually think is worse is the non-indexation of the $3M limit.

Can't find actual figures but a $ in 2005 was worth about twice what it is now so my kids at around 30 now will see an effective (adjusted) limit of the equivalent of $1.5M when they turn 50 and $1M when they get to 60. At this level would capture a lot more people than current <1%!!

Fairness in my view would mean indexation of this $3M limit and also removal of the plan to tax unrealised gains.

 

[Quickstatus]

at one stage they were planning to not index AND tax unrealised Gains