Ask the Expert: Why we must stay on top of changing super rules
Question 1
Hi Craig, thank you for your informative answers to questions submitted.
I’m 56 years old, single, self employed with a healthy super balance of more than $1.7 million.
I contribute the maximum concessional amount to super each year. I have read that the balance transfer cap for the first account-based pension is now $2 million, and indexed periodically.
When I am able to access my super, my balance is likely to be well over the balance transfer cap at that time. So what happens to the remaining super funds with regards to access/withdrawal and taxation?
Also if my super balance grows to above (I think) $3 million, I believe additional taxes must be paid. If this is the case, is it of benefit to contribute each year, knowing that additional taxes will be due?
Thank you, Andrew
Hi Andrew,
Yes, you have a very healthy balance.
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To clarify, the “Transfer Balance Cap” is the amount you can transfer into a pension account. It’s currently $2 million and is indexed in line with inflation (CPI).
If you have more than that, you could simply leave the money in super. There is no limit on how much you can have in super. Once you have met a condition of release (such as over 60 and retired or reaching age 65), the funds become totally accessible.
All withdrawals, whether from a super pension or a regular super account, are tax free from age 60.
The advantage of a pension is that all internal earnings within the account are tax free. Whereas earnings within a super account are taxed at 15 per cent.
In relation to your comments about the additional 15 per cent tax above $3 million, this is a good reminder to wait until the proposals are legislated (become law).
Recently the federal government announced it had made changes to its original proposal. A second threshold of $10 million has also been announced.
Both thresholds will be indexed. As the $3 million will be indexed, you may now not exceed this figure. Even if you do, only the amount above that will attract the additional tax.
Whether you continue to save in super will come down to your overall circumstances. If you held substantial investments outside super, you would likely to be liable for income tax.
Tax is only one consideration.
You should like to obtain some personal advice to help you work out the best structure(s) to hold your investments.
Question 2
I have a capital loss of about $200,000 after taxi plates being taken back by the government.
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I wonder if I should sell my investment property, which should have a capital gain of more than $200,000, so I can offset part of that gain.
I would like to buy a replacement investment property to generate income. This is so that, when I die, the base price of the new property will be much higher and my children will pay less capital gain tax.
Please advise if this is feasible.
While tax is an important aspect, it should not be the only factor in determining which assets to buy/sell/hold.
However, you are correct that if you have a capital loss it can be used only to offset a capital gain. If you don’t have a capital gain, you can carry forward that loss until such time as you do, and then you can fully or partially use it.
If you die without using the capital loss, it is generally lost and can’t be used. Therefore, what you have stated does sound feasible.
To ensure you are making the correct calculations, I suggest obtaining personalised tax advice.
Question 3
Hi, I have recently retired and set up a income stream account using the maximum transfer balance cap.
I have $200,000 leftover funds in my accumulation account and am wondering if it’s better to withdraw and invest these outside of super or leave them there and accept the mandatory 15 per cent tax. Otherwise, I wouldn’t pay tax outside of super as I have no other income.
You are correct that if you leave funds in super accumulation then all earnings are taxed at 15 per cent.
Therefore, if you have no other taxable income outside super, then yes, you may be better off investing outside of super. Earnings on $200,000 is unlikely to create any income tax liability.
Of course, you still need to find a suitable investment.
The above assumes you do not have a partner. For couples, topping up – or evening up – superannuation balances is a popular and effective strategy.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
