Superannuation Discussion + market volatility

[Quickstatus]

Yes, the point being that everyone think they have paid their fair share but from their point of view other people have not.

 

[Ansett Nostalgic]

The top rate of income tax should be reduced to 25%.

 

[CaptJCool]

The top rate of income tax should be reduced to 25%.

It has for the small business corporations

Everyone ought be allowed to be an independent contractor

 

[SYD]

It has for the small business corporations

But from the ground up. ie no concessional brackets nor concessional CGT. Also, goes back to 30% if the company only has “passive income”.

 

[Brissy1]

In today's AFR

These 4 deductions could cut your tax by $121,400

These tax deductions could give someone earning $200,000 a refund cheque north of $44,000. And that’s before any charitable donations.

www.afr.com

Journalist states "Concessional super contributions. The first deduction which is open to people age 66 or under with less than $500,000 in their superannuation account, is the ability to top up any shortfall in the so-called concessional contributions cap of $30,000 this year." Then goes on with an example, person with SG contribution of $23,000 "meaning there is a gap of $7,000 that the person can contribute...then claim a $7,000 deduction."

Surely this is wrong? I thought there was no $500,000 restriction unless using catchup to make a >$30,000 contribution?

 

[Ansett Nostalgic]

It has for the small business corporations

Everyone ought be allowed to be an independent contractor

I meant for individuals too

 

[lakeman]

Apropos of me saying that investing is more favourably taxed than one's labour, I tried to work out the effective taxation rates (note that this is not to do with investing in one's own business, which as @tgh has expressed is a different game

(Investment Loan)	negative marginal​
(Investment Loan in Super)	-15%​
Capital gain on family home	0%​
Personal income up to $18.2K	0%​
Rent on neutrally/negatively geared property	0%​
Capital gains in Super Retirement Account	0%​
Rents/dividends in Super Retirement Account	0%​
Capital gains in Super Accumulation Account (current)	10% (0% if never realised)​
Rents/dividends in Super Accumulation Account (current)	15%​
Concessional Contributions to Super (income<$250k)	15%​
Residual Super at death to non-dependents (less non-concessional portion)	15%​
Portion of capital gains in Super Retirement Account with Balance>$3M (proposed) (I think)	15%​
Personal income $18.2-45K	16-18%​
Capital gains outside super	22.5% (0% if never realised)​
Business tax (turnover<$80M)	25%​
Capital gains in Super Accumulation Account for proportion TSB>$3M (proposed)	25%​ (15% if never realised)
Business tax (turnover >$80M)	30%​
Rents/dividends in Super Accumulation Account for proportion TSB>$3M (proposed)	30%​
Concessional Super Contributions (income>$250k)	30%​
Personal Income $45-135K	32%​
Personal Income $135-190K	39%​
Personal Income >$190K	47%​
Rental Income less expenses from positively geared property	Marginal​
Dividends outside Super	Marginal​

https://static.ffx.io/images/$width_1240/t_resize_width%2Cq_52%2Cf_auto/ad01ca8bb5458f58dce86e735be2c4159859ed50b1ad293643e6a37bcf128635

Thought this might be useful to put here.
It’s a table comparing effective tax rates vs super balance in an article talking about div296 in the afr

 

[Seat0B]

Mmm at "age 40". So you missed out on what I was paying in 1980s, 60%+medicare. Kids today ha .

Yes we too paid those Scandinavian tax rates - and now don’t qualify for any support in retirement except our self funded retirement. I’m happy enough to pay the proposed extra tax but I really don’t agree with tax on unrealised gains. Imagine the outcry if that applied to all investors on all classes of assets.

 

[NM]

As someone whose super is never going to exceed the $3M threshold, even with anticipated inheritances and potential residence downsizing or working until 70 years of age, the prospect of the increased tax rate for exceeding the threshold is of little consideration to me personally. BUT I am concerned that taxing unreaslised capital gains in this space may open the door for similar processes in other areas and I fundamentally disagree with the basis for such taxing.

I do hold firm top the promise that was spun when Superannuation Guarantee requirements commenced, being that a fixed 15% tax is taken when it goes in, 15% tax is taken on earnings, and then withdrawal is tax-free as all the required taxes have already been paid. I would be pretty disappointed it a future policy change then determined that all the required taxes have not been paid and more was due upon withdrawal. The reduced rate of 15% on earnings is the bonus/incentive for people to save/invest for their own retirement, and I think the results show that is working - i.e. more and more people are financially capable of self-funding much of their retirement.

 

[Kerrodt]

https://static.ffx.io/images/$width_1240/t_resize_width%2Cq_52%2Cf_auto/ad01ca8bb5458f58dce86e735be2c4159859ed50b1ad293643e6a37bcf128635

Thought this might be useful to put here.
It’s a table comparing effective tax rates vs super balance in an article talking about div296 in the afr

I'm not sure how they have been able to work that out and the underlying assumptions used because the Div296 tax is based on a change in balance from point to point, and not on an absolute figure at a single point in time.

In addition, one would need to add into the calculations the impact of the following:
1. CGT when an asset is sold. There is no offset or adjustments made for Div296 tax paid/payable.
2. Tax on fund earnings/net income. There is no offset or adjustments made for Div296 tax paid/payable/
3. No ability to offset past Div 296 tax paid on a situation where (a) fund balance increases in one period - Div296 tax paid, then (b) fund balance declines in value in the next period - no Div296 tax offset or refund for the tax already paid at (a), then (c) fund balance increases in value in the following period - Div296 tax paid again (ostensibly on the same gains previously taxed in (a)) with no offset for the tax paid in period (a).

All of this will just flush excess funds out of super funds and into alternate vehicles outside of the superannuation tax system.

 

[andye]

As someone whose super is never going to exceed the $3M threshold, even with anticipated inheritances and potential residence downsizing or working until 70 years of age, the prospect of the increased tax rate for exceeding the threshold is of little consideration to me personally. BUT I am concerned that taxing unreaslised capital gains in this space may open the door for similar processes in other areas and I fundamentally disagree with the basis for such taxing.

I do hold firm top the promise that was spun when Superannuation Guarantee requirements commenced, being that a fixed 15% tax is taken when it goes in, 15% tax is taken on earnings, and then withdrawal is tax-free as all the required taxes have already been paid. I would be pretty disappointed it a future policy change then determined that all the required taxes have not been paid and more was due upon withdrawal. The reduced rate of 15% on earnings is the bonus/incentive for people to save/invest for their own retirement, and I think the results show that is working - i.e. more and more people are financially capable of self-funding much of their retirement.

I've not been able to work out with certainty what (if any) CGT is payable currently if one withdraws from Accumulation (rather than Retirement stream). I thought it might be 10% (if asset held for >1y) but am not sure

That was based on the assumption that the Balance Cap acted as a limit on unlimited tax-free withdrawals in retirement.

Especially as for property and shares, the capital gain usually exceeds the rent/dividend income, the tax on capital gains is thus less than 15% and often 0%. In my mind, the tax has not already been paid as you imply

 

[Brissy1]

As someone whose super is never going to exceed the $3M threshold, even with anticipated inheritances and potential residence downsizing or working until 70 years of age, the prospect of the increased tax rate for exceeding the threshold is of little consideration to me personally. BUT I am concerned that taxing unreaslised capital gains in this space may open the door for similar processes in other areas and I fundamentally disagree with the basis for such taxing.

I do hold firm top the promise that was spun when Superannuation Guarantee requirements commenced, being that a fixed 15% tax is taken when it goes in, 15% tax is taken on earnings, and then withdrawal is tax-free as all the required taxes have already been paid. I would be pretty disappointed it a future policy change then determined that all the required taxes have not been paid and more was due upon withdrawal. The reduced rate of 15% on earnings is the bonus/incentive for people to save/invest for their own retirement, and I think the results show that is working - i.e. more and more people are financially capable of self-funding much of their retirement.

I think many more people will be affected in retirement by the proposed changes, than they realise.

Eg, a 55yo with $1m balance.

Contributes $30k pa through SG + deductable topping up. Say, 8% av. return in growth/share option. Super balance will be>$3 by retirement age 67.

Historical returns in some options has been higher so would also affect 55yo with< $1m.
(I have no issue with the higher tax rate, just with targeting super with unrealised CG)

 

[33kft]

Contributes $30k pa through SG + deductable topping up. Say, 8% av. return in growth/share option. Super balance will be>$3 by retirement age 67.

This would be a feature and not a bug. I suspect having those with super balances approaching $3M and who likely won't be eligible for the age pension taking "early" self-funded retirement prior to 67 would probably be seen as an added benefit of div296

 

[Kerrodt]

I think many more people will be affected in retirement by the proposed changes, than they realise.

Eg, a 55yo with $1m balance.

Contributes $30k pa through SG + deductable topping up. Say, 8% av. return in growth/share option. Super balance will be>$3 by retirement age 67.

Historical returns in some options has been higher so would also affect 55yo with< $1m.
(I have no issue with the higher tax rate, just with targeting super with unrealised CG)

This would be a feature and not a bug. I suspect having those with super balances approaching $3M and who likely won't be eligible for the age pension taking "early" self-funded retirement prior to 67 would probably be seen as an added benefit of div296

Bear in mind that $3M today will not be the same as $3M in 12 years time when that hypothetical 55yo person today reaches 67yo. Inflation will eat away at their purchasing power significantly over that time.

I don't think having a super balance approaching $3M is, on its own, a good enough reason to retire early. But it is a good reason to slow down to the absolute minimum the level of contributions that you put into super and invest the rest somewhere else while you keep on working for as long as you want to.

 

[andye]

This would be a feature and not a bug. I suspect having those with super balances approaching $3M and who likely won't be eligible for the age pension taking "early" self-funded retirement prior to 67 would probably be seen as an added benefit of div296

Maybe not a benefit to the country though. Better to have people paying top-bracket income tax than retiring.
Though as long as over 60, you are still able to work and draw down from Super. Becomes more tax efficient after 65

 

[Happy Dude]

I think many more people will be affected in retirement by the proposed changes, than they realise.

Eg, a 55yo with $1m balance.

Contributes $30k pa through SG + deductable topping up. Say, 8% av. return in growth/share option. Super balance will be>$3 by retirement age 67.

Historical returns in some options has been higher so would also affect 55yo with< $1m.
(I have no issue with the higher tax rate, just with targeting super with unrealised CG)

There must be a lot of "+ deductable topping up" going on here.

Assuming none and no tax on earnings and no fees, that 55yo would get to $2.015m according to the moneysmart calculator.

The calculator tops out at $95k/per year for after tax contributions, but say $52k/yr (ie $1k/week), then the balance at 67 would be $2.54m.

Getting to $3m will take some effort.

 

[SYD]

Maybe not a benefit to the country though. Better to have people paying top-bracket income tax than retiring.

Ex military people refer to them as “roster blockers” ie holding up promotion of peeps coming through.

Though as long as over 60, you are still able to work and draw down from Super. Becomes more tax efficient after 65

But you can’t unless you’re only working P/T.

 

[burmans]

But you can’t unless you’re only working P/T.

Although the ATO say a TRIS allows you to move to P/T I have found no evidence it’s actually a requirement!

Transition to retirement income streams (TRIS) | Australian Taxation Office

Revised TRIS requirements a trustee must know for starting, paying, commuting and ending this type of pension.

www.ato.gov.au

 

[NM]

Although the ATO say a TRIS allows you to move to P/T I have found no evidence it’s actually a requirement!

Transition to retirement income streams (TRIS) | Australian Taxation Office

Revised TRIS requirements a trustee must know for starting, paying, commuting and ending this type of pension.

www.ato.gov.au

So if I drop from working 50 hours a week down to say 35 hours a week, I can consider myself "part-time" compared with previous work profile

 

[andye]

So if I drop from working 50 hours a week down to say 35 hours a week, I can consider myself "part-time" compared with previous work profile

My understanding is that you could even increase your hours and remain eligible for a TRIS post-60