Superannuation Discussion + market volatility

[Seat0B]

They still are.
I think that when people become or are just a little over the $3m will withdraw (if only to avoid compliance/valuation costs)...buy lifestyle assets, home improvements or home upgrade et c. But don't sell those CBA shares you bought for $25

Super is not an investment, it's a structure. People with larger excess will withdraw and invest through another structure which doesn't tax unrealised gains.

Even I (ordinary person and not an accountant/lawyer) can see benefits of, say, transfering excess into private investment Company structure- no unrealised CGT (but realised cgt is higher), 30% tax on net profit but can pay out franked (!) dividend as desired (unlike trust profits), and bonus avoids the super "inheritance" tax. Message to Gov, people aren't stupid.

These are the sorts of things that we will be doing. I’m always surprised at the naivety of both sides of politics that they seem to assume that people affected by various policies will just bend over and take it without making changes to minimise impact. Compliance on an SMSF has been getting tougher and tougher over the past few years. Our super fund auditors are very hard to deal with, and the thought of tougher compliance and the associated costs makes me run screaming away from keeping an excess super balance, even if the net tax payable is roughly the same for the reasons mentioned up thread.

Of course no one wants to pay more tax, but I could live with the extra 15% tax proposed. However, I find the taxing of unrealised gains both unfair and scary. And that is what will drive me to alternatives.

 

[TheRealTMA]

...when there is no recession and price resets

Long term, still enough capital to live off.

 

[Quickstatus]

still enough capital to live off.

Maybe not enough for those who have small balances. The long term assumes enough time to recover

 

[Freq Flier 2013]

I was just thinking and with the tax on unrealized gains, wouldn’t it be more prudent to lock in your gain each year / period, pay your tax and try to reset. Therefor trying to avoid large downturns and “wasted” payment of taxes on unrealized gains?

 

[JohnK]

The problem with that is it assumes regular and stable income from the investments. Unfortunately it is rare for any investments to provide stable returns over the decades it is needed.

My current back of envelope projections is done on 4% yearly return.

Aged care issues aside there is no way we're spending the same at 80 years old as we're expected to spend at 70 years old.

Of course one can forego these discretionary things and rely solely on the public health system and other Government agencies, and live more frugally, albeit at a cost to your health, which as you get older seems be assume more importance in one's mind.

Currently spending ~$300/month on private Health Insurance. Is that spend likely to get higher than $500/month for both of us? I think thats easily covered in my $2500/monthly spend projections. We don't drink, don't eat out, modest car etc.

Also if it gets to that point then I'm prepared to wait to do hip/knee replacements in public hospitals.

No aged care in Australia either.

 

[Kerrodt]

I was just thinking and with the tax on unrealized gains, wouldn’t it be more prudent to lock in your gain each year / period, pay your tax and try to reset. Therefor trying to avoid large downturns and “wasted” payment of taxes on unrealized gains?

Not really clear what you’re getting at here, but if what I am interpreting from you is correct, the new 296 tax proposal won’t work like that. You can’t “lock in” or “reset” much, if anything with the new tax.

Go back a couple of pages where I reference an AFR article that sets out quite well how it’s planned to work.

 

[SYD]

Not really clear what you’re getting at here, but if what I am interpreting from you is correct, the new 296 tax proposal won’t work like that. You can’t “lock in” or “reset” much, if anything with the new tax.

Go back a couple of pages where I reference an AFR article that sets out quite well how it’s planned to work.

Yep, if the TSB goes up (less any contributions but adding back in withdrawals), you’ll pay 15% prorata on the amount above $3m.

Selling assets will just convert to cash or buy other assets. The TSB will still be the same.

 

[Ansett Nostalgic]

Actually, IMHO why should the majority of Australians with reasonable super balances and taxpayers keep funding the tax rip off largess of people who have squirrelled away huge balances ?

42 people with in excess of $100million in super balances.

That’s not what super was designed for.

This is a tax on unrealised gains at the $3m threshold and you respond with a red herring about $100m balances. You've totally missed the point. If you're concerned about 42 people with $100m then you should be proposing the threshold be set at $100m.

People who accumulate more super are being thrifty and wise with their own money. They're not 'ripping off' anyone else.

 

[Quickstatus]

They're not 'ripping off' anyone else.

And they are merely following the existing rules.

 

[TheRealTMA]

This is a tax on unrealised gains at the $3m threshold and you respond with a red herring about $100m balances. You've totally missed the point. If you're concerned about 42 people with $100m then you should be proposing the threshold be set at $100m.

People who accumulate more super are being thrifty and wise with their own money. They're not 'ripping off' anyone else.

YMMV. $3million in super is very adequate. Should be indexed, but nevertheless, just like negative gearing for multiple property investors, excess tax concessions are a drain on the rest of us takpayers.

Super was not designed to be an excessive drain on tax concessions but to replace govt expenditure on pension. If you have in excess on $3m, then good luck. Just pay the tax rather than expecting other to subsidise you.

 

[Quickstatus]

Super was not designed to be an excessive drain on tax concessions but to replace govt expenditure on pensio

So why didn't governments put a limit on contributions when super balance hits a certain arbitrary limit.

 

[TheRealTMA]

So why didn't governments put a limit on contributions when super balance hits a certain arbitrary limit.

Good idea.

 

[Quickstatus]

Good idea.

Sure - the thing though is that it is not exactly a surprise to Govt. They could have put a cap many years ago.
The other problem is that defined benefit schemes can provide a pension that would require > $3M capital backing and there appears to not be a limit on that side of super.
So It's not about putting a limit on super contributions but rather they want to get through a new method of taxation.

 

[Brissy1]

Just pay the tax rather than expecting other to subsidise you

I think the targeted people will say yeh, nah. It will be the only structure taxing unrealised increase in value. There's the rub.

 

[SYD]

So why didn't governments put a limit on contributions when super balance hits a certain arbitrary limit.

They have.

Non-concessional contributions top out once you hit the max (soon to be $2m). Concessional continue to age 60 something.

Apart from “downsizer” contributions, the only other way to grow super balances over $2m is through growth. And possibly business owners still have the option to sell and convert the proceeds to super (recognising that many couldn’t or didn’t pay themselves super while setting up / running their business).

But it won’t take too long before many are staring down $3m.

As mentioned earlier, those VERY few peeps with massive balances are literally a dying race. Yes, they could have set the threshold to $10m (un indexed) and still make a tax windfall (well, maybe in the first year).

 

[andye]

The govt isnt saying so but the purpose of the tax is to say, "the Australian taxpayer is unwilling to heavily subsidise (CGT 0-10%) tax-free pensions of >$150k/pa (or $300k pa as a couple)" nor "provide a low-tax (0-<15%) inheritance strategy for wealthy people's children"

I agree many aspects of the legislation are illogical and "unfair" but if you have assets >$3M* you'll need to restructure (into assets that will likely tax more) or suck it up.

I may be wrong but the group that may find restructuring most difficult are wealthy DB recipients. This would include judges and pollies but I don't think they are being exempted. These people, in general, have received very generous tax breaks to get to the super balances they have reached

*I stand a decent chance of being caught up in this and definitely will when either my wife or I die. However, I don't think the idea that already wealthy people can make big gains from investment and pay very low rates of tax is "fair" to current or future working taxpayers

 

[Quickstatus]

have.

Non-concessional contributions top out once you hit the max (soon to be $2m). Concessional continue to age 60 something.

Except there is no limit to the total super balance

I may be wrong but the group that may find restructuring most difficult are wealthy DB recipients. This would include judges and pollies but I don't think they are being exempted.

I think you will find that judges will/may be exempt due to a constitutional provision for judges remuneration. And they are surprisingly quiet about federal pollies. State pollies are apparently exempt.

 

[Pushka]

Except there is no limit to the total super balance


I think you will find that judges will/may be exempt due to a constitutional provision for judges remuneration. And they are surprisingly quiet about federal pollies. State pollies are apparently exempt.

I heard every politician is exempt from this. And another group as well, some category of public servants but maybe it was indeed Judiciary.