In This Issue
Is Super still any good?
The answer to this simple question is a categoric YES!
Superannuation is not dead, and this might come as a shock to our (as usual) over-excited, tabloid media commentators.
Treasurer Chalmers has recently announced a proposed additional tax for members of superannuation funds with balances more than $3 million – effective from 2025.
This tax rate change still compares well to a tax rate of 47% on investments outside of super (and even the former Reasonable Benefits Limits [RBL] tax rate) and therefore, remains an incredibly useful strategy.
For well-resourced couples, there is still the opportunity to have $6 million in retirement savings at the lower tax rate of 15% (assuming no funds are yet in tax exempt Account Based Pension phase!). In today’s money, that’s a significant sum, and puts them easily in the global top 1% of retirees.
Whilst this is a fairly simplistic scenario, bear in mind that there are also other strategies available. Suddenly, Insurance Bonds have the potential to again become fashionable - as per my Eureka Report article Death without Taxes – 9th August 2022. Unlike taxable super, Insurance Bonds do not attract the 17% Death Benefits Tax, which was the motivation for this article.
Similarly, a natural progression might be to upgrade the family home, a strategy which personally, I have chosen to adopt; it means my family will get the benefits now – with a Capital Gains Tax free asset for my estate. In fact, some readers may recall the client situation summarised in my article Your Super House – 7th November 2018.
The motivation to share this real-life scenario was based on the fact that this particular home was built pre-1985, and therefore ‘grandfathered’ under CGT laws. One client (the husband) didn’t want to sell the family home; his wife, on the other hand, had long yearned for a new home by the sea.
Given that the couple in this particular scenario, had in excess of $8 Million in combined super and pension balances, my advice was to buy that ‘long dreamt of’ new house by the sea and designate it as their principal place of residence. That way, neither property was subject to CGT, the funds withdrawn from super were no longer subject to the superannuation tax rate on earnings, with NO Death Benefits tax liability.
As some of you will have heard me say “When I worked in the Tax Department my responsibility was to protect the government’s revenue. Now it is to protect my clients’ revenue.” There will always be arbitrage opportunities for financial planners in any system the public service designs and tinkers with.
Be assured also, that as far as practicable, we will strive to future-proof our clients’ plans by avoiding locking them into situations which might negatively affect their future financial security.
A reminder on the basics of super:
- 15% tax taken out on the way in
- 15% tax charged on earnings.
- 0% tax after age 60 on Account Based Pensions (subject to the current $1.7 Million Transfer Balance Cap threshold) and lumpsum withdrawals.
- 17% Death Benefits Tax on any remaining Taxable Components in super after death of the owner and any tax dependants.
Some additional tax facts:
- Most investments outside of super (provided they are held for a year or longer) effectively attract a CGT rate of 50% of your personal tax rate.
- There are usually no taxes payable on the family home and it is Centrelink exempt, as well (subject to the home being on less than 5 acres and not being used for business purposes).
- People under Centrelink Age Pension age earning below $18,200 pa pay no tax.
- Singles over Centrelink Age Pension age pay no tax on the first $32,279 of TAXABLE Income (which does not include tax exempt super and pension payments).
- Each member of a couple over Centrelink Age Pension age pays no tax on the first $28,974 of TAXABLE Income each (this does not include tax exempt super and pension payments).
- People earning over $180,000 pa pay tax at the rate of 47%.
- Those earning more than $250,000 pa pay an extra 15% tax on their superannuation.
Despite the recently announced government tinkering with the top end of the superannuation system, after the family home, it remains the best ‘free kick’ in investing – even for the very wealthy.
If you would like to read my latest Media Release regarding these super changes, please click here.
What you will take from both is a sense that the principles of superannuation remain sound – and that if you contribute as much as you can, as often as you can and for as long as you can, you will have an enjoyable retirement.
And one more thing
If any of your family or friends are concerned about the benefits of super, then feel free to pass on our details and one of my team will be pleased to explain how everything works – and why superannuation remains a worthwhile investment strategy.
If you are interested in seeing more of my latest contributions to the national retirement savings discussion, please click here.
As always, if I or any of our team can be of help, please do not hesitate to contact us on (08) 8130 5130 or via email email@example.com.
Theo Marinis B.A., B.Ec., CPA., FPA®