Quantitative Strategies

08/12/2023

Looking forward to Tuan's Party tonight

02/12/2023

In the Poetry Room at Zeit & Za'atar, part of Cultivate, a PYT Fairfield event

22/03/2023

Fewer tax benefits on income from assets above $3 million

The government has foreshadowed minor changes to the taxation of superannuation income. A link to the information sheet is at the end of this piece.
The Treasurer, Dr Jim Chalmers, announced "From 2025-26, the concessional tax rate applied to future earnings for balances above $3 million will be 30 per cent. This is expected to apply to around 80,000 people, and they will continue to benefit from more generous tax breaks on earnings from the $3 million below the threshold."
At mSmart we believe that correct and clear information needs to be provided to the people investing their money in superannuation, especially given its compulsory nature. Unfortunately, that is not what we’ve seen.
Journalists are doing their readers a disservice when they make comments such as “Individuals with superannuation balances surpassing $3 million will see their tax rate double to 30 per cent from 2025-26, Treasurer Jim Chalmers said on Tuesday.”
That’s definitely not what Chalmers said! A tax rate, well below the standard rate, is applied to superannuation income – this is 15% in the accumulation phase and 0% in retirement. With these changes, the extent of this reduced tax rate is being lessened on investment gains generated by assets in excess of $3 million. An additional 15% tax rate is applied to those investment gains.

How significant is this change? Well, as was announced, this immediately affects only a small number of people with superannuation balances above the $3m. What could be done with $3 million?
A retired couple both aged 67 with $3 million at retirement could expect to be able to spend $178,000 per annum (in today’s dollars) from their fund. This is quite respectable! But note that if that super fund was split between the 2 people then their individual balances would be well below the $3m, and the new tax would not affect them – the tax is on a personal basis, not on a fund basis. Even if both people in the couple had an account balance of $3 million at retirement, they could each expect to draw an annual amount about $178,000 from their balance, giving the couple a total income in excess of $350,000 almost completely tax free. That’s a very comfortable retirement.
Looking at levels of super fund assets that are more typical, a combined balance of $2 million would give an expected spending level for a couple of $126,000 ($63,000 each), and for a total balance of $1 million the expected spending level would be $83,000 ($41,000 each).

Unlike most other parameters affecting superannuation and CentreLink payments, the $3 million limit will not be indexed. This puts it on the same basis as the income figures for determining the different rates of income tax. So, this feature of the tax system is not unusual.
How significant is this limit for a typical SMSF fund? Let’s look at a couple both aged 50. According to the ATO a typical SMSF member at this age has about $200,000 in their account and about $100,000 income, so would be adding $10,500 per annum each to their account. By the time they retire at age 67 their combined fund is expected to be worth $1,500,000 – there is about 1 chance in 10 that it would be above $2 ¼ million. Remembering that the $3 million is applied to each person’s account balance, this couple should not be worried about paying additional tax, even if the limit is not changed for 17 years!

Background
Values in this opinion piece have been calculated using the calculator available at www.mProjections.com.au. People interested in having a 2-week free trial of this calculator can contact Frank Ashe at [email protected] or Derek Condell at [email protected].
The government information sheet on the proposed changes is here:
https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2023-03/better-targeted-superannuation-concessions-factsheet_0.pdf

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16/12/2022

Fully agree: "I think the reduction of cost will be purpose-built, predominantly algorithmic advice", which is what we're aiming to do!

Try us out for two weeks free at https://www.mprojections.com.au/register/complimentary-2-week-access/

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Violation Tracker Search Page. Violation Tracker, produced by the Corporate Research Project of Good Jobs First, is a wide-ranging database on misconduct by large and small corporations throughout the United States.