Superannuation Discussion + market volatility

[MARTINE]

give what away?

BOMAD

 

[Happy Dude]

Wouldn't the marginal tax rate be affected by the CGT gain prior to any CGT discount? It only takes $190K to hit the top marginal rate.

Yes but selling in a no-income year would mean that the income tax is lower due to tax free/lower tax brackets. I thought this is why it is spouted as a strategy. I need to get advice regarding putting any proceeds into super prior to paying income tax and income splitting too.

 

[Mr_Tee]

Yes but selling in a no-income year would mean that the income tax is lower due to tax free/lower tax brackets. I thought this is why it is spouted as a strategy. I need to get advice regarding putting any proceeds into super prior to paying income tax and income splitting too.

There will be a new minimum 30% tax rate on capital gains irrespective of the levels of other income during the tax year which effectively eliminates the "sell in a low/no income year". So whatever you plan to do you will, at least, pay 30% on the capital gain.

 

[Quickstatus]

Yes but selling in a no-income year would mean that the income tax is lower due to tax free/lower tax brackets

The portion under $190K will be taxed at about $51K

51/190 =27% averaged

So the bit under $190K will have a tax rate of 27% and the bit above $190K will have a tax rate of 45%. (Then apply the Medicare levy, CGT discount whatever it is.)

If all the $190K was at 45%, you are basically only saving 18% x 190 = $34K (not including CGT discount) by selling it in a zero personal and other income year.

Generally you want to sell when the market is good for selling, not necessarily waiting for low income year - the market could dip in that year

Using current legislation

 

[Brissy1]

An in-specie transfer of an asset from personal names into a SMSF will not eliminate/reduce any CGT implication for the transferor

No. To be clear, the purpose of the transfer would be so future cg, after the transfer, are taxed at 10%

 

[Quickstatus]

would be so future cg, after the transfer, are taxed at 10%

But the in specie transfer would incur CGt at the normal rate for that transaction?

 

[Happy Dude]

There will be a new minimum 30% tax rate on capital gains irrespective of the levels of other income during the tax year which effectively eliminates the "sell in a low/no income year". So whatever you plan to do you will, at least, pay 30% on the capital gain.

Commencing after 1 July 2027. Sales before then are taxed under the current rules. I'm guessing there may be a rush to complete sales before then particularly from older Gen-Xers.

The portion under $190K will be taxed at about $51K

51/190 =27% averaged

So the bit under $190K will have a tax rate of 27% and the bit above $190K will have a tax rate of 45%. (Then apply the Medicare levy, CGT discount whatever it is.)

If all the $190K was at 45%, you are basically only saving 18% x 190 = $34K (not including CGT discount) by selling it in a zero personal and other income year.

$34k is a significant amount in my world, especially for doing nothing other than timing it right. Plus it would probably be more after splitting proceeds and super contributions.

In our situation, according to CoPilot, the difference in CGT between the current rules and those applicable after 1 July 2027 may be of the order of $50k and potentially a lot more (~$150k). There's still a lot of moving parts (ie it's not a law yet, valuations required on 30 June 2027, etc).

Not sheep stations but enough to affect retirement considerations, ie push back a year or two, or modify lifestyle plans.

So ultimately, we may end up not selling the IP and living in it instead (full disclosure: the alternative means that we'd be retiring in our CBR home which seems more palatable to Mrs Happy Dude than to me). If we had more super, the budget changes would be a much easier pill to swallow, but that's a cost of living an itinerant expat life when younger. No regrets there though, other than not understanding super, and the importance of it, at the time.

 

[Quickstatus]

we may end up not selling the IP and living in it instead

That is one way of managing the logistical issues around downsizing

 

[Happy Dude]

That is one way of managing the logistical issues around downsizing

It's actually, and coincidentally, a terrific house for an oldie; no steps, fairly small. It is in VIC so there's a mental health cost to consider. I will look into downsizing benefits around super.

 

[Pushka]

I think you're right here. Plus the "minimum 30%" CGT tax rate will kick in very quickly on most sales with a large capital gain.

Seems to me the only tax friendly strategy is to buy bigger and more expensive Main Residences. - which defeats the intent of encouraging people to downsize as they get older.

Funny that.

There will be a new minimum 30% tax rate on capital gains irrespective of the levels of other income during the tax year which effectively eliminates the "sell in a low/no income year". So whatever you plan to do you will, at least, pay 30% on the capital gain.

Even if no reportable income? Not on Centrelink. Self funded only.

 

[Quickstatus]

Seems to me the only tax friendly strategy is to buy bigger and more expensive Main Residences

While tax friendly, it is not outgoings friendly .
None of the insurers have an online building replacement cost for > $2M. Need to get a valuer opinion which cost $2K (for the first quote) , then pay the premium through the nose.

 

[CaptJCool]

Bear in mind some of the gain remains “tax-free” as its inflation indexed. From what I read,

The 50% discount is EASY to calculate so easy for everyone to understand

The inflation adjusted gain is not as every year it’s a different figure so the accumulated value is a “moving” target

That said, there’s been scenarios where the 50% discount is LOWER than than the inflation one.

It. Comes about because you are trying to tax multiple years of gain, in one year of income - that muddies the waters.

 

[Pushka]

Bear in mind some of the gain remains “tax-free” as its inflation indexed. From what I read,

The 50% discount is EASY to calculate so easy for everyone to understand

The inflation adjusted gain is not as every year it’s a different figure so the accumulated value is a “moving” target

That said, there’s been scenarios where the 50% discount is LOWER than than the inflation one.

It. Comes about because you are trying to tax multiple years of gain, in one year of income - that muddies the waters.

Our IP gained so little in value until now that we could use either method. It's changed now. But these changes won't really mess us around too much.

 

[Quickstatus]

That said, there’s been scenarios where the 50% discount is LOWER than than the inflation one.

Definitely true. The inflation adjusted method just adds more work and cost to everyone.