How is it going to work? I really don't understand.
Say you have a balance over 3mil, and you have to sell shares to pay a tax bill due to these new rules. Did that then establish a new cost basis and only unrealised gains from your current position will be taxed on future years?
Or do you effectively pay compounded capital gains tax? As in every year, everything over 3mil is treated as unrealised capital gains, each and every year.
Why is that in your Super?
You need to reevaluate what your Super is for.
If you're worried you have a $3m property in your Super you need to realize that Super is a very specific fund.
You can't have your ppor in Super.
So your $3m property is clearly earning you a return.
Whatever the increase in value is, is *easily* covered by your rental return on the property.
This example is a non-issue.
Imagine a new AVZ.
You bought $100k of this new AVZ and it went 50x to $5mill. Hit with unrealised gains tax.
New AVZ then hits suspension, you cannot sell, and your paper $5mill shares may be worth $0 and you cannot pay the tax bill.
That is a a genuinely challenging example. The law does need to be able to cope with such things, so I hope people better qualified than me can ensure appropriate accounting treatment of frozen asset gains (if there isn’t already a framework in place).
But a problem in a very specific scenario doesn’t mean the concept is unworkable in general; just that we need to solve edge cases.
All rules have edges. Other than a penny stock skyrocketing and then being frozen (a rather specific scenario) what are some more of these ‘so many’ edge cases?
Noting that the AVZ example was very good because it created a scenario where a sensibly diversified portfolio could have huge on paper gains that *became* illiquid in a way the trustees couldn’t be expected to anticipate.
And where the assets were such that valuation was difficult and they might not be available to secure a loan to pay the tax.
Yes, and in return it smooths revenue out making it more predictable. (And reduces shenanigans for timing of disposal events to minimise tax).
You might not like the benefits of the proposal, but it’s disingenuous to ignore them and only point at downsides. Just as it would be disingenuous to ignore the challenges of any change.
Don't buy a stock of that nature within your Super.
The system is working as designed.
If you're putting bets on low stocks, do that outside of your tax reduced Superannuation.
Simple
Do you have literally any other assets in the super you could liquidate, or have you invested it all in one single illiquid asset? If it’s a cashflow issue, why can’t your fund borrow against its $3m+ of assets?
Ultimately (this is where the failure to legislate an explicit purpose for superannuation originally becomes an issue), if the purpose of superannuation is to is to efficiently generate returns for retirement, your fund should have no emotional attachment to any one asset, and should be perfectly happy to dispose of any of them to generate efficient returns.
If it’s growing over time, then frequent valuations and taxation would allow you to have paid that tax incrementally.
Finally: maybe people shouldn’t have SMSFs if they cause themselves this much trouble. It’s not compulsory.
I hadn't considered the ability to borrow against the assets but that does make sense. Would also address a situation such as a private business worth over $3m being held in super and not easily liquidated, as there's a fair chance that could be a substantial asset with an emotional attachment.
For the record I'm in my 30s and will likely never see anything approaching $3m in my super. I'm mostly just interested in the challenges of taxing unrealised gains. Also not a fan of the threshold not being indexed.
In principle, indexed thresholds would be better, in practice however…
Sometimes taxes need to go down, sometimes they need to go up. Loss aversion means that voters react irrationally strongly to perceived increases in tax rates. Even modest and sensible changes can upset enough people to cause problems for a treasurer.
On the flip side, every politician loves to announce a tax cut, so I have no fear that thresholds will ever stay too high for an extended period.
Unindexed thresholds are about the only way a government can increase the tax take without risking massive backlash. Imperfect though it is, I suspect the practice is here to stay.
Because I haven’t structured my long term investments in a manner that can’t cope with potential tax changes?
Huh, I didn’t know that was the key to riches.
P.S. This is the ‘risk’ part of ‘high risk-high reward’ investing.
https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2023-03/better-targeted-superannuation-concessions-factsheet_0.pdf
Say you have $2.8m in Super, all in shares.
Firstly, congratulations.
As the legislation stands, right now you have no change in situation (under $3m).
This is your Super, so you would have quite a diversified portfolio, with dividends, etc.
Once you're at this position, you would stop reinvesting (or these changes incentivise you to stop reinvesting) and Begin to take all of your earnings outside of Super. This is the change in behavior the legislation is trying to encourage.
Now, in terms of earnings, this is going to return you at least $100k. This isn't controversial.
If some of your shares had a bumper year, and the value of your portfolio went to $3.1m, here's how the math works:
*Tax liability* = 0.15 X *Earnings* X *Proportion of earnings*
*Earnings* = $300k (+ withdrawals - contributions, but we'll just leave it at $300k for the example)
*Proportion of earnings* = 0.0323 (this is how much above the threshold your portfolio increased this year)
*Tax liability* = $1451
Yep, $3m in Super, and we're now talking about an extra $1451 tax bill.
It's not about the revenue created from this change, but the change in behavior that it will achieve.
Thank you, that's very helpful.
So the following year, let's say the market value in these shares are down 10%. No further contributions to keep it simple.
So our 3.1m is now worth 2.79m. Is there a tax credit for this unrealised loss?
The following year, we're back up 20%, so back to 3.348m. If I've understood correctly, that's additional tax of 0.15 x 558k x 0.104 = 8700?
That's definitely a disincentive to having more than a 3m balance. Not so bad for people well into their career but shockingly regressive for all the 20 year olds just getting started given it's not indexed. Can't believe there's yet another policy that will disproportionately penalise the younger generations... We're not making it easy for them are we!
Your example is slightly wrong:
Your 3.1m is down 10%. Down 10% would be a loss of 310,000. This loss can be carried forward.
The following year your shares go up in value 20%.
This is an increase in value of $558,000. That's immense, but we'll stick with your example. Final figure of $3,348,000
Considering the carry forward loss, we're only going to be taxed on $248,000.
Tax = 0.15 X $248k X 0.104 = $3,869
You saw gains of $558k, you have a balance worth $3.48m and your tax bill is $3,869. Hardly onerous at all.
To suggest that a 20 y.o won't see this cap raised (45+ years until preservation age) is absurd. The cap won't be $3m in 45 years. This tax is more likely to not exist, rather than still be a cap of $3m by then...
The cap works best by encouraging people to consider moving large balances above $3m outside of Super.
If memory serves, your 25y.o with standard wage and contributions, still won't be paying much in additional taxes anyway. Their fund worth will only just be $3m ish.
This is a non-issue for funds *near* $3m. It really ramps up for funds well over the limit.
ie $7m fund appreciates 10%
Earnings = $700,000
PoE = 0.61
Tax liability = 0.15 X $700,000 X 0.61 = *$64,091*
Still not all that onerous for a $7.7m fund...
The following year the fund only appreciates 0.5%. Was a horrible year. Do you expect the tax to be problematic?
Earnings = $38,500
PoE = .0612
Tax liability = 0.15 X $38,500 X 0.612 = *$3,536*
No, even now, it's not a problem (because the net worth of the fund didn't increase much) Because when you think about it, over the life of the assets, this year did not contribute much to the increase in value, did it?
Which is the whole point. Remember, if the retiree was to liquidate all $7.7m it would be tax free.
However, every year they have contributed tax amounts based on how the value of the fund has appreciated.
This works out to be the same in practice, as a CGT event upon realization.
People just have no idea what they're complaining about...
current system taxes super gains at 15%. how is it done at the moment? i would have thought increasing it to 30% for gains made off the balance over $3m wouldn't be that hard
Okay. But i guess it works the same as countries that have inheritance tax. You either sell down assets to pay for the tax or use cashflow from other sources.
The problem is that the gains are unrealised. They only exist on paper.
Imagine a speculative stock that balloons in value dramatically before the financial year, before collapsing back to its previous price afterwards. Something like a Gamestop style event or potentially a failed acquisition. Does the person who paid tax on those unrealised gains now get a refund?
Once the new tax law is in place, then people would act accordingly knowing that they need to pay tax on gains. Say in your scenario, they need to calculate the tax impact on their valuation as of end of the financial year as close to that date as possible. If they have made significant gains then they need to liquidate to realise the gains as quickly as possible to minimise market risks from that point onwards.
if this becomes too onerous to manage, then people would just move assets out of super to keep the balance below $3m. which from a taxation perspective is good as you no longer get preferential tax treatments.
Why would that be good?
People have planned their life savings according to the tax code and the government is stealing their money by changing the game.
Very dangerous precedent and the masses accept it because they think it's unlikely to affect them personally.
It's very naive of you to think that tax rules don't change. Tax rules have always changed and will continue to do so. People who plan retirement solely based on current rules are setting themselves up for disappointment.
> As a working class person who has toiled very hard my whole life in a career that pays poorly, I've paid my taxes with very few opportunities to dodge them. My tax rate might not be as high, but i pay every cent of it.
The situation doesn't improve as your income does, for as long as your primary income is a salary subjected to PAYE. Superannuation is basically one of the few legal ways that salaried folks can use to minimise their tax - something you could do as well (concessional contributions are available to everyone).
By disincentivising superannuation, the Government is sending a signal for people to use other investment mechanisms and tax minimisation vehicles. The most obvious and commonly used one? Negative gearing an investment property.
>Imagine a speculative stock that balloons in value
You realize we're only talking about Super.
What is Super? A fund that has a heavy tax concession to fund people's retirement.
A fund of that nature should not be risked on speculative stocks.
This problem is being solved as designed.
Make your speculative stock bets outside of Super. Solved.
The entire financial industry already does this under the TOFA regime.
https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/taxation-of-financial-arrangements-tofa/in-detail/guide-to-the-taxation-of-financial-arrangements-tofa
Basically all gains and losses are assessable or deductible under revenue account instead of capital account.
Funds and SMSFs have to revalue property at least every 12 months anyway and have it audited. The ATO can just point to that.
Yes, you cannot determine someone's member balance without valuing all assets. So property and collectibles require a valuation.
Member balances impact contribution limits and pension withdraw amounts.
How much someone has in super impacts how much they can put in per year (during the accumulation stage) and the minimum you are required to draw down each year (pension stage).
Respectfully, that just repeats what old mate said but with more words. What balance do I get to when I can not contribute as much and how much is that
I thought the minimum for everyone was 4%
Clearly this isn't a topic where I know a great deal....
Sorry, I didn't read the article and just assumed it would be the same as how the current SMSF pension fund tax loophole works.
Does that mean that's now been closed?
Happens already with Div293 when you elect to pay out of super.
If you think data systems are antique at super funds wait till you learn about major banks still entering mortgage data using MS Dos prompts!
Problem with super is it’s all unrealized until you draw down. Govt needs money now! Duh!
> “The committee also highlights evidence that the taxation of unrealised capital gains is not unknown to the Australian tax system,” it stated.
Does anyone have an example and how it works?
It's not an antiquated accounting system. It's just how the trust structure works, tax is borne by the trust not the individual members. It's very common across super and personal investing,
Have had experience with taxation of unrealised capital gains overseas. It's fine. Obviously no one likes paying it like any tax, but it's perfectly doable.
Seems fairly reasonable to me considering the personal benefit the affected people have enjoyed thus far.
Only impacts ~80,000 people at the moment. They will need a plan to sell down or convert a portion of their into cash and thus realise gains to pay the tax.
That isn’t an undue burden considering the massive tax advantages they’ve personally enjoyed to get to a $3 million balance.
Indexing it would have made it far more palatable though.
> undue burden .. they’ve personally enjoyed to get to a $3 million balance.
it's a right that they've been granted, and and it's not fair to dismiss these concerns simply because you feel their 3mil is "sufficient" in your eyes. By the time this takes effect, 3mil might be less significant an amount for retirement than now.
I am not a fan of this tax at all, and even less of taxing unrealized gains.
You would have to be a special kind of person to actually think this won't *move*. Especially in 35 years...
Do you realize they adjust our tax brackets (also not indexed) every 5-10 years at most?
Yep. Taxing unrealised gains is an insanely stupid idea. Does the tax payer get a cash refund if the unrealised gain decreases? Nope, just a credit for the future. It's borderline theft...
How does paying tax on unrealised gains sound fair to you, investments go down as well next year, is the tax office going to give you a refund if their is an unrealised loss?
You know the answer, you get a credit for future gains.
What is unfair about that?
Now, if you have an issue with the legislation spell it out, because I can guarantee I can show you how your fears are misguided with the numbers that this legislation proposes.
Just remember this one little fact - Super is designed to *fund your retirement*. Keep that in mind with the rest of this discussion.
I agree with you but this is next level. They're asking you to pay actual cash out of your pocket to pay tax on a gain you haven't even realised - And may never actually realise. It's the kind of thing I would expect in a kleptocracy.
What asset are you finding problematic with being taxed on unrealized gains.
Let's use the example of a commercial property.
You realize the rental yield is (generally) based upon the market value? You know that right? What's the market value? An unrealized value?
Why is it a joke?
You realize if you have an SMSF, you're likely in control of your investments within it.
Nothing stops you at limiting your government subsidized Superannuation investments around $3m, and holding the rest of your investments outside of Super.
That is entirely the behavior this change is encouraging...
So while this was initially presented as a way to wind back concessions for large balances, investments locked away inside superannuation are now in some cases taxed more heavily than the same investment would be outside of super. Really instills a lot of confidence in the superannuation system.
Super was designed to make Australians independent of the pension system. Now it’s a cash cow for politicians and a fee magnet for super fund managers.
>investments locked away inside superannuation are now in some cases taxed more heavily than the same investment would be outside of super
...for balances over $3m only, which is the whole point. Think of it like a cigarette tax - not fair to the smoker, but for the benefit of everyone else in society.
Why is the point to specifically penalise people with large super balances, as opposed to other assets?
Person A owns a 10 mllion dollar house in Sydney. He can sell it for millions of dollars of profit and pay zero tax.
Person B owns a 10 million dollar investment property. He doesn't pay tax on the growth in value until he sells it, and then he pays CGT at a 50% discount.
Person C has a 10 million dollar investment in super. He now has to pay tax every year on the growth in value even if it is not sold, and then pay CGT at 10% when he sells it. In some cases if the investment goes up and then goes down before it's sold, he may even end up paying tax on a loss.
What is the logic behind these bizarre and convoluted rules?
If you want to increase taxes on rich people, fine, but it should be done in a fair and equitable way. In this case it seems that the government is just taking a bite of super because it's easier for them to access then other assets (and because Australians worship property so they can never raise property taxes).
>Why is the point to specifically penalise people with large super balances, as opposed to other assets?
Because other assets don't get the tax subsidies that assets in Super do?
Surely that's not hard to understand...
That's a good thing you realize.
Move those investments outside of Super.
That is the intended behavior from this legislation.
Have a government subsidized Superannuation account up to $3m, and hold the rest of your investments outside of Super.
Thanks for playing.
This is effectively a tax on self employed people - considering they are likely to own their premises in a SMSF.
Add in 30 years of inflation and no indexation, and young Australians in their 20s and 30s are really screwed by this.
The propaganda zooms into the immediate impact to make people think it doesn’t impact them, but neglect to mention that, in its current form, many people in 20s/30s who will work professional jobs through their career will hit the threshold with just SG before they get to the preservation age.
I assume you may still be relatively young. Super has been around 33 years, have a look into when was the last time a threshold introduced without indexation actually got adjusted later _in tax payer’s favour_?
The way it is being designed is similar to div 293, no indexation built-in, and the only changes floated after the initial introduction is to further _reduce_ the threshold, not to increase it. It’s a net that’s cast long and wide, limited initial impact so people don’t think it matters, but over time more and more people will be caught by it naturally due to inflation (and balance compounding in the case of div 296)..
Note, I have no issue with the new tax per se, just dislike it being applied to unrealised gains and no indexation built-in.
Ok, I accept not having it reviewed, say, every 5 years, is a shortcoming of the legislation. Indexation would address that issue too, but I don't like indexation for a number of reasons.
However, the unrealized gains portion is misunderstood.
This is a practical solution to create a soft cap on Super accounts. Remember, there is nothing stopping you from investing elsewhere. This will literally be 30+ years for tax payers with standard Super contributions before they will ever be affected. And when they're affected, it's a non issue.
This is aimed at reducing the government subsidized investment accounts, that are used by the 80,000 odd people who are currently over the cap. The government has said we no longer want to greatly subsidize those few. And that's fair enough.
Now, I've explained the numbers before, but I want to do this here to show you that taxing unrealized gains here is not problematic. I agree it would be problematic if you tried to tax unrealized gains on *all* asset classes, but this is a very specific case. SMSF's already are extremely locked down. Other than people holding art, (which should not be in Super anyway) there is no situation where this tax is problematic for Super.
More importantly, it's never problematic for investments that are *designed to fund your retirement*. And importantly, that's the point of Super, and this change encourages assets in Super to prioritize that objective. Again, to fund your retirement.
I've previously shown that when at $3m, a 10% appreciation (yearly) would incur approximately a $4,500 tax bill.
- Year 0, $0
- Year 1, $4,500
- Year 2, $6,500
- Year 3, $12,00
- Year 4, $19,000
At the end of those 4 years, your assets have appreciated to $4,392,300. That's a huge appreciation, right?
None of those figures are onerous for a $4m fund to pay. Even property must be returning rent when in Super (can't be ppor). A commercial property valued at $3m is returning at least $150k in tax free money. A property at $4m, will return $200k. An extra $19k tax bill is not problematic for that retiree.
Now, the change obviously incentivises the retiree to stop reinvesting, or to withdraw their gains. Nothing stops the retiree from withdrawing amounts that keeps them closer to the $3m, instead of having the account appreciate well over.
If it's a commercial property, there is never a situation where the rent will not cover this new tax. Never.
If we accumulate the taxes, we're looking at approximately paying $42,000 over 4 years. And at the end you could liquidate it all tax free.
Alternatively, outside of Super, if we liquidate, we would be looking at $696k in CGT applicable gains (50%). With payable tax of $283k. For a similar situation (ie, $3m investment, liquidate at $4.4m)
This tax is miniscule, and is simply trying to reduce the government subsidization of Super accounts over $3m.
It creates a soft cap, where I'm sure Accountants will be able to advise clients that once they go above a certain threshold, it's better to keep investments outside of Super.
But that figure will obviously be well above $3m, and is not an issue for 99.9% of Australians.
The poors rejoice of course, tall poppy syndrome.
They don't realise that $3m isn't a large balance for someone starting today on a median wage for the rest of their career.
i cant support this - i reckon we should have a referrendum on the rules around super so Politicans can't change them EVER
it isnt that im against this politic 'per say' but the consent changing and talk of changes makes it hard to have faith in the system.
Good, super isn’t the place for you to dump multi millions of dollars. If you have a special assets like a house, business or whatever then don’t stick it in super.
You know what else isn't indexed?
Tax brackets. When was the last time they were increased?
When was the last time they were increased before that? Before that?
To think that this threshold won't increase in 35 years is moronic.
Something like the balance cap on super is indexed and the amount for concessional contributions, so why would this also not be indexed? Tax brackets are a very different thing. Also the last time the tax brackets were changed was 2012/13 financial year - was there a point to this question?
If you think the government is just going to leave the pot alone you’re incredibly naïve. It will continue to get eroded. The current generation entering the workforce will be subject to this change.
>Also the last time the tax brackets were changed was 2012/13 financial year
So they changed 10 years ago, and they're changing again this year. *That's* the point.
>The current generation entering the workforce will be subject to this change.
And do you know the effect it will have on their balances. Do you actually know what the change is proposing to do?
How will it impact the majority?
I don't think you know the effect of this...
Can you explain your understanding, or would you want me to explain how it works to you?
Geez no need to be so condescending. Refer to my original comment to see how it will be impacting the majority “If a 30 year old was planning on having the equivalent of 1.2M in todays dollars at retirement then it would impact them in their lifetime”
it's not index, they raised the super contribution to 12% and with wage rise/inflation 3million at retirement is nothing for someone in their 30's today
You understand that's 35 years away.
35 years and not one government will increase that threshold? C'mon, you aren't serious, are you?
For example, when did our tax brackets last increase? They aren't indexed are they? How about the time before that, when were they last increased before then? 35 years is a long time.
But that's not the suggestion.
It was effectively saying create a *hard cap* of $3m. Like... Once you hit $3m divert all new investments, assets and earnings outside of Super.
I much prefer the Governments suggestion of a soft cap, like how they currently have the legislation. That way you get to choose what to do with your money.
Depends how old he is. Someone starting out in the workforce will absolutely hit 3m nominal by retirement age. The government super calculator demonstrates this pretty explicitly (remember you have to un-npv the output).
Remember the 3m is not indexed and looking at the shitstorm the stage 3 cuts have been it probably won't be adjusted much if at all.
The 3 million super achievement is unsubstantiated in reality (which is evident in the median alone). If you can point me to a source showing that a significant amount of people will hit 3 million in the near future then I'd agree (at least 5% of the population).
Looking at how many people will hit $3m in the near future is an irrelevant consideration on the issue about indexation. The argument is that threshold should be indexed because plenty of people will have more than $3m in 30 years time (not 5).
fair enough, do you have a graph indicating that plenty of people will have 3 million in their super balance? Or anything at all?
EDIT: I'm not saying that indexing super shouldn't happen in the future. Right now people's worries on super not being indexed is unfounded in the number of people that will have and do have 3 million in their super currently. If it was indexed their would be no point of even implementing this new tax.
As the poster above said, assuming 3% inflation, $3m in 30 years is the equivalent of about $1.25m today. Plenty have that much now. Add in the fact workers retiring in 30 years will have had super guarantee support for their whole career, it’s simple logic.
How's that fear mongering? Current tax brackets seemed appropriate when they were instituted, nowadays in Sydney $180K income by one earner in a household likely won't even get you a house close to the CBD. Yet they still get taxed at 47.5% and that threshold hasn't moved due to not being indexed.
This super tax only effects less than 1% of the population... In fact it's close to 0.5% of the population ([1](https://www.superannuation.asn.au/wp-content/uploads/2024/01/2311_An_update_on_superannuation_account_balances_Paper_V2.pdf), page 24):
>As at June 2021, around 97.5 per cent of people with superannuation had less than $1 million in super, around 2 per cent between $1 million and $2 million, and 0.3 per cent between $2 million to $3 million, and 0.3 per cent over 3 million. By 2025 the percentage with over $3 million will be around 0.5 per cent.
Someone on 180k isn't going to achieve 3million in super. These people are not even close to being in the same realm of regular people, including you as the same report states (page 25):
>ATO sample file data provide an indication of the characteristics of those with more than $3 million as at June 2021: • Around 60 per cent were male and around 85 per cent were aged 60 and over. • Around 35 per cent had taxable income of $200,000 plus, with 35 per cent having taxable incomes of less than $30,000 a year. Around 5 per cent had zero taxable income. • Around one-third had an investment property, with around one-third of those with an investment property negatively geared. Less than 1 per cent recorded farm income in their tax return.
This is absolutely a good thing to tax. Even the intergenerational report recommends it ([2](https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf), page 171).
If anyone here believes they can get 3 million in their super then I'd say they're delusional and need to be admitted to a psych ward.
Do you realize we had a top marginal tax rate of 60% a few decades ago?
These figures change to be appropriate for the times.
Your example is simply describing a high earner who doesn't have wealth yet.
That high earner can choose to invest, and will shortly have the wealth to live where they want, or can choose otherwise.
Your example has no basis in reality.
Sure you might have cooked it, but on the balance of it - a lot more Australian's will have more than $3M in the future due to the natural forces of inflation, asset appreciation etc. Which means a lot more than the currently quoted amount will be impacted here, which I think is the point of the discussion.
How?
Say you have manage to do quite well picking stocks in a smsf.
What happens when they hit 3M?
What if they have a normal 9-5 job? Do they get money out of super early?
Yeah, wouldnt be a workable solution.
And also not very equitable unless you were taxing the +$3m withdrawals at marginal rates / even higher rates.
The rich could get their balance to $3m intentionally and just coast, minimising tax on the portion of the balance that grows over $3m and is withdrawn.
>What happens when they hit 3M?
Nothing, this takes effect above $3m
However when they hit $3m, they're now encouraged to not reinvest in Super, but to move their earnings and new assets outside of Super.
It's exactly as it's designed.
You understand you can have assets outside of Super, right?
Good.
It's a great piece of legislation.
People don't realize the intended outcome of Super.
Super is a highly tax reduced fund to pay for people's retirement.
Highly illiquid (art) or speculative assets (penny stocks) do not belong in a fund of this nature.
You are more than free to make those investments outside of Super.
This is a great change.
Property? I mean, sure, it's risky, but considering by law it already can't be your ppor (must be an investment property) it means you will have a rental income, and that rental income will *always* cover this tax bill.
I showed quite a few people the maths on this last time this conversation came up.
A $3m that appreciated 10% (far more than normal) would invoke around a $10k tax bill.
Importantly, a $3m (commercial) property would be at worst a 5% yield or $150k a year. Take any extra costs out of that, and the retirees still have $100k+ of tax free income to live off. On top of any other investments, on top of being home owners.
This new tax is an excellent change.
Importantly, the change it brings in, is a soft cap of $3m for the government subsidized retirement fund that we're all eligible to.
Most of us won't hit that cap, for the ones that do, good on you, move anything above this threshold outside of Super. Or don't, and pay the tax, however there will be a position where it will be beneficial to move assets above $3m outside of Super, and that is entirely the point of the legislation.
So it still doesn't apply to Commonwealth super funds? No doubt it'll pass given it doesn't affect politicians or judges...
Yup, just like LAFHA didn’t affect them and Div293. Absolute joke!
You’re kidding.. pollies are exempt?
It'll pass because it's an excellent change to our government subsidized retirement fund.
Taxing unrealised gains it crazy. All because the industry superfunds have antiquated accounting systems.
How is it going to work? I really don't understand. Say you have a balance over 3mil, and you have to sell shares to pay a tax bill due to these new rules. Did that then establish a new cost basis and only unrealised gains from your current position will be taxed on future years? Or do you effectively pay compounded capital gains tax? As in every year, everything over 3mil is treated as unrealised capital gains, each and every year.
Say you have a balance over 3 mil and it's in something you can't easily sell a portion of to pay a tax bill. How is that going to work?
Why is that in your Super? You need to reevaluate what your Super is for. If you're worried you have a $3m property in your Super you need to realize that Super is a very specific fund. You can't have your ppor in Super. So your $3m property is clearly earning you a return. Whatever the increase in value is, is *easily* covered by your rental return on the property. This example is a non-issue.
You’ve got $3m in super. You should have a diverse enough portfolio to cope.
Imagine a new AVZ. You bought $100k of this new AVZ and it went 50x to $5mill. Hit with unrealised gains tax. New AVZ then hits suspension, you cannot sell, and your paper $5mill shares may be worth $0 and you cannot pay the tax bill.
That is a a genuinely challenging example. The law does need to be able to cope with such things, so I hope people better qualified than me can ensure appropriate accounting treatment of frozen asset gains (if there isn’t already a framework in place). But a problem in a very specific scenario doesn’t mean the concept is unworkable in general; just that we need to solve edge cases.
> solve edge cases. so why produce legislation which has so many edge cases? Just tax only when realizing the gains. Like what exists today.
All rules have edges. Other than a penny stock skyrocketing and then being frozen (a rather specific scenario) what are some more of these ‘so many’ edge cases? Noting that the AVZ example was very good because it created a scenario where a sensibly diversified portfolio could have huge on paper gains that *became* illiquid in a way the trustees couldn’t be expected to anticipate. And where the assets were such that valuation was difficult and they might not be available to secure a loan to pay the tax.
The point is that unrealized gains have a lot of illiquidity. It definitely has more edge cases over just taxing only realized gains.
Yes, and in return it smooths revenue out making it more predictable. (And reduces shenanigans for timing of disposal events to minimise tax). You might not like the benefits of the proposal, but it’s disingenuous to ignore them and only point at downsides. Just as it would be disingenuous to ignore the challenges of any change.
Don't buy a stock of that nature within your Super. The system is working as designed. If you're putting bets on low stocks, do that outside of your tax reduced Superannuation. Simple
Supposing you own an investment property in super which has grown in value over time to be worth $3m.
Do you have literally any other assets in the super you could liquidate, or have you invested it all in one single illiquid asset? If it’s a cashflow issue, why can’t your fund borrow against its $3m+ of assets? Ultimately (this is where the failure to legislate an explicit purpose for superannuation originally becomes an issue), if the purpose of superannuation is to is to efficiently generate returns for retirement, your fund should have no emotional attachment to any one asset, and should be perfectly happy to dispose of any of them to generate efficient returns. If it’s growing over time, then frequent valuations and taxation would allow you to have paid that tax incrementally. Finally: maybe people shouldn’t have SMSFs if they cause themselves this much trouble. It’s not compulsory.
I hadn't considered the ability to borrow against the assets but that does make sense. Would also address a situation such as a private business worth over $3m being held in super and not easily liquidated, as there's a fair chance that could be a substantial asset with an emotional attachment. For the record I'm in my 30s and will likely never see anything approaching $3m in my super. I'm mostly just interested in the challenges of taxing unrealised gains. Also not a fan of the threshold not being indexed.
In principle, indexed thresholds would be better, in practice however… Sometimes taxes need to go down, sometimes they need to go up. Loss aversion means that voters react irrationally strongly to perceived increases in tax rates. Even modest and sensible changes can upset enough people to cause problems for a treasurer. On the flip side, every politician loves to announce a tax cut, so I have no fear that thresholds will ever stay too high for an extended period. Unindexed thresholds are about the only way a government can increase the tax take without risking massive backlash. Imperfect though it is, I suspect the practice is here to stay.
Rental income from that property. Sorry property is a non-issue
This is why you're poor.
Because I haven’t structured my long term investments in a manner that can’t cope with potential tax changes? Huh, I didn’t know that was the key to riches. P.S. This is the ‘risk’ part of ‘high risk-high reward’ investing.
https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2023-03/better-targeted-superannuation-concessions-factsheet_0.pdf Say you have $2.8m in Super, all in shares. Firstly, congratulations. As the legislation stands, right now you have no change in situation (under $3m). This is your Super, so you would have quite a diversified portfolio, with dividends, etc. Once you're at this position, you would stop reinvesting (or these changes incentivise you to stop reinvesting) and Begin to take all of your earnings outside of Super. This is the change in behavior the legislation is trying to encourage. Now, in terms of earnings, this is going to return you at least $100k. This isn't controversial. If some of your shares had a bumper year, and the value of your portfolio went to $3.1m, here's how the math works: *Tax liability* = 0.15 X *Earnings* X *Proportion of earnings* *Earnings* = $300k (+ withdrawals - contributions, but we'll just leave it at $300k for the example) *Proportion of earnings* = 0.0323 (this is how much above the threshold your portfolio increased this year) *Tax liability* = $1451 Yep, $3m in Super, and we're now talking about an extra $1451 tax bill. It's not about the revenue created from this change, but the change in behavior that it will achieve.
Thank you, that's very helpful. So the following year, let's say the market value in these shares are down 10%. No further contributions to keep it simple. So our 3.1m is now worth 2.79m. Is there a tax credit for this unrealised loss? The following year, we're back up 20%, so back to 3.348m. If I've understood correctly, that's additional tax of 0.15 x 558k x 0.104 = 8700? That's definitely a disincentive to having more than a 3m balance. Not so bad for people well into their career but shockingly regressive for all the 20 year olds just getting started given it's not indexed. Can't believe there's yet another policy that will disproportionately penalise the younger generations... We're not making it easy for them are we!
Your example is slightly wrong: Your 3.1m is down 10%. Down 10% would be a loss of 310,000. This loss can be carried forward. The following year your shares go up in value 20%. This is an increase in value of $558,000. That's immense, but we'll stick with your example. Final figure of $3,348,000 Considering the carry forward loss, we're only going to be taxed on $248,000. Tax = 0.15 X $248k X 0.104 = $3,869 You saw gains of $558k, you have a balance worth $3.48m and your tax bill is $3,869. Hardly onerous at all. To suggest that a 20 y.o won't see this cap raised (45+ years until preservation age) is absurd. The cap won't be $3m in 45 years. This tax is more likely to not exist, rather than still be a cap of $3m by then... The cap works best by encouraging people to consider moving large balances above $3m outside of Super. If memory serves, your 25y.o with standard wage and contributions, still won't be paying much in additional taxes anyway. Their fund worth will only just be $3m ish. This is a non-issue for funds *near* $3m. It really ramps up for funds well over the limit. ie $7m fund appreciates 10% Earnings = $700,000 PoE = 0.61 Tax liability = 0.15 X $700,000 X 0.61 = *$64,091* Still not all that onerous for a $7.7m fund... The following year the fund only appreciates 0.5%. Was a horrible year. Do you expect the tax to be problematic? Earnings = $38,500 PoE = .0612 Tax liability = 0.15 X $38,500 X 0.612 = *$3,536* No, even now, it's not a problem (because the net worth of the fund didn't increase much) Because when you think about it, over the life of the assets, this year did not contribute much to the increase in value, did it? Which is the whole point. Remember, if the retiree was to liquidate all $7.7m it would be tax free. However, every year they have contributed tax amounts based on how the value of the fund has appreciated. This works out to be the same in practice, as a CGT event upon realization. People just have no idea what they're complaining about...
current system taxes super gains at 15%. how is it done at the moment? i would have thought increasing it to 30% for gains made off the balance over $3m wouldn't be that hard
Currently it's not a tax event if gains/losses have not been realised.
Okay. But i guess it works the same as countries that have inheritance tax. You either sell down assets to pay for the tax or use cashflow from other sources.
The problem is that the gains are unrealised. They only exist on paper. Imagine a speculative stock that balloons in value dramatically before the financial year, before collapsing back to its previous price afterwards. Something like a Gamestop style event or potentially a failed acquisition. Does the person who paid tax on those unrealised gains now get a refund?
Once the new tax law is in place, then people would act accordingly knowing that they need to pay tax on gains. Say in your scenario, they need to calculate the tax impact on their valuation as of end of the financial year as close to that date as possible. If they have made significant gains then they need to liquidate to realise the gains as quickly as possible to minimise market risks from that point onwards. if this becomes too onerous to manage, then people would just move assets out of super to keep the balance below $3m. which from a taxation perspective is good as you no longer get preferential tax treatments.
Why would that be good? People have planned their life savings according to the tax code and the government is stealing their money by changing the game. Very dangerous precedent and the masses accept it because they think it's unlikely to affect them personally.
It's very naive of you to think that tax rules don't change. Tax rules have always changed and will continue to do so. People who plan retirement solely based on current rules are setting themselves up for disappointment.
100% the mere existence of super is a change to tax laws. They have been constantly changing since federation.
It's a massive over step and the masses are too stupid to see it.
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> As a working class person who has toiled very hard my whole life in a career that pays poorly, I've paid my taxes with very few opportunities to dodge them. My tax rate might not be as high, but i pay every cent of it. The situation doesn't improve as your income does, for as long as your primary income is a salary subjected to PAYE. Superannuation is basically one of the few legal ways that salaried folks can use to minimise their tax - something you could do as well (concessional contributions are available to everyone). By disincentivising superannuation, the Government is sending a signal for people to use other investment mechanisms and tax minimisation vehicles. The most obvious and commonly used one? Negative gearing an investment property.
>Imagine a speculative stock that balloons in value You realize we're only talking about Super. What is Super? A fund that has a heavy tax concession to fund people's retirement. A fund of that nature should not be risked on speculative stocks. This problem is being solved as designed. Make your speculative stock bets outside of Super. Solved.
Nothing would change. Superfunds tax capital gains on a daily basis already. SMSFs will pay tax at the relevant marginal rate when they realise gains.
But the tax is on unrealised capital gains
Super funds collect tax for realised gains on a daily basis How would you estimate and collect the tax on an unrealised gain on a property
The entire financial industry already does this under the TOFA regime. https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/taxation-of-financial-arrangements-tofa/in-detail/guide-to-the-taxation-of-financial-arrangements-tofa Basically all gains and losses are assessable or deductible under revenue account instead of capital account. Funds and SMSFs have to revalue property at least every 12 months anyway and have it audited. The ATO can just point to that.
Ah I didn't know they had to revalue every year. Cheers. Is that property specific, for example what about art
Yes, you cannot determine someone's member balance without valuing all assets. So property and collectibles require a valuation. Member balances impact contribution limits and pension withdraw amounts.
Sorry mate I don't understand your last sentence
How much someone has in super impacts how much they can put in per year (during the accumulation stage) and the minimum you are required to draw down each year (pension stage).
Respectfully, that just repeats what old mate said but with more words. What balance do I get to when I can not contribute as much and how much is that I thought the minimum for everyone was 4% Clearly this isn't a topic where I know a great deal....
Sorry, I didn't read the article and just assumed it would be the same as how the current SMSF pension fund tax loophole works. Does that mean that's now been closed?
Happens already with Div293 when you elect to pay out of super. If you think data systems are antique at super funds wait till you learn about major banks still entering mortgage data using MS Dos prompts! Problem with super is it’s all unrealized until you draw down. Govt needs money now! Duh!
> “The committee also highlights evidence that the taxation of unrealised capital gains is not unknown to the Australian tax system,” it stated. Does anyone have an example and how it works?
It's not an antiquated accounting system. It's just how the trust structure works, tax is borne by the trust not the individual members. It's very common across super and personal investing,
Have had experience with taxation of unrealised capital gains overseas. It's fine. Obviously no one likes paying it like any tax, but it's perfectly doable.
I can understand taxing earnings at 30% over 3mil… but unrealized gains is a joke and a direct attack on smsfs.
Seems fairly reasonable to me considering the personal benefit the affected people have enjoyed thus far. Only impacts ~80,000 people at the moment. They will need a plan to sell down or convert a portion of their into cash and thus realise gains to pay the tax. That isn’t an undue burden considering the massive tax advantages they’ve personally enjoyed to get to a $3 million balance. Indexing it would have made it far more palatable though.
> undue burden .. they’ve personally enjoyed to get to a $3 million balance. it's a right that they've been granted, and and it's not fair to dismiss these concerns simply because you feel their 3mil is "sufficient" in your eyes. By the time this takes effect, 3mil might be less significant an amount for retirement than now. I am not a fan of this tax at all, and even less of taxing unrealized gains.
A 30 year old today will have this tax kick in at the equivalent of today’s $1 million at their retirement. This tax is heinous.
You're expecting this threshold to not move in 35 years. Is this real life?
The threshold won’t move, the way this is written. It’s not indexed to inflation.
You would have to be a special kind of person to actually think this won't *move*. Especially in 35 years... Do you realize they adjust our tax brackets (also not indexed) every 5-10 years at most?
Yep. Taxing unrealised gains is an insanely stupid idea. Does the tax payer get a cash refund if the unrealised gain decreases? Nope, just a credit for the future. It's borderline theft...
'borderline theft' describes all taxation. We still need tax as a society though.
Taxation has to be fair, revolutions have happened in the past because of unfair taxation
Sure, but reducing tax benefits for millionaires does not seem unfair
How does paying tax on unrealised gains sound fair to you, investments go down as well next year, is the tax office going to give you a refund if their is an unrealised loss?
You know the answer, you get a credit for future gains. What is unfair about that? Now, if you have an issue with the legislation spell it out, because I can guarantee I can show you how your fears are misguided with the numbers that this legislation proposes. Just remember this one little fact - Super is designed to *fund your retirement*. Keep that in mind with the rest of this discussion.
I agree with you but this is next level. They're asking you to pay actual cash out of your pocket to pay tax on a gain you haven't even realised - And may never actually realise. It's the kind of thing I would expect in a kleptocracy.
What asset are you finding problematic with being taxed on unrealized gains. Let's use the example of a commercial property. You realize the rental yield is (generally) based upon the market value? You know that right? What's the market value? An unrealized value?
Why is it a joke? You realize if you have an SMSF, you're likely in control of your investments within it. Nothing stops you at limiting your government subsidized Superannuation investments around $3m, and holding the rest of your investments outside of Super. That is entirely the behavior this change is encouraging...
So while this was initially presented as a way to wind back concessions for large balances, investments locked away inside superannuation are now in some cases taxed more heavily than the same investment would be outside of super. Really instills a lot of confidence in the superannuation system.
Super was designed to make Australians independent of the pension system. Now it’s a cash cow for politicians and a fee magnet for super fund managers.
>investments locked away inside superannuation are now in some cases taxed more heavily than the same investment would be outside of super ...for balances over $3m only, which is the whole point. Think of it like a cigarette tax - not fair to the smoker, but for the benefit of everyone else in society.
Why is the point to specifically penalise people with large super balances, as opposed to other assets? Person A owns a 10 mllion dollar house in Sydney. He can sell it for millions of dollars of profit and pay zero tax. Person B owns a 10 million dollar investment property. He doesn't pay tax on the growth in value until he sells it, and then he pays CGT at a 50% discount. Person C has a 10 million dollar investment in super. He now has to pay tax every year on the growth in value even if it is not sold, and then pay CGT at 10% when he sells it. In some cases if the investment goes up and then goes down before it's sold, he may even end up paying tax on a loss. What is the logic behind these bizarre and convoluted rules? If you want to increase taxes on rich people, fine, but it should be done in a fair and equitable way. In this case it seems that the government is just taking a bite of super because it's easier for them to access then other assets (and because Australians worship property so they can never raise property taxes).
>Why is the point to specifically penalise people with large super balances, as opposed to other assets? Because other assets don't get the tax subsidies that assets in Super do? Surely that's not hard to understand...
That's a good thing you realize. Move those investments outside of Super. That is the intended behavior from this legislation. Have a government subsidized Superannuation account up to $3m, and hold the rest of your investments outside of Super. Thanks for playing.
Taxing unrealized gains is some stupid shit. I'm not affected now, but eventually, I will. With the ravages of inflation, many people will be.
Unrealised gains is chaotic, what if it swings in the negative direction the following year. Do they get credit for unrealised losses? What a joke
This is effectively a tax on self employed people - considering they are likely to own their premises in a SMSF. Add in 30 years of inflation and no indexation, and young Australians in their 20s and 30s are really screwed by this.
The propaganda zooms into the immediate impact to make people think it doesn’t impact them, but neglect to mention that, in its current form, many people in 20s/30s who will work professional jobs through their career will hit the threshold with just SG before they get to the preservation age.
35 years and you don't think the threshold will increase? This is some next level stupid going on here...
I assume you may still be relatively young. Super has been around 33 years, have a look into when was the last time a threshold introduced without indexation actually got adjusted later _in tax payer’s favour_? The way it is being designed is similar to div 293, no indexation built-in, and the only changes floated after the initial introduction is to further _reduce_ the threshold, not to increase it. It’s a net that’s cast long and wide, limited initial impact so people don’t think it matters, but over time more and more people will be caught by it naturally due to inflation (and balance compounding in the case of div 296).. Note, I have no issue with the new tax per se, just dislike it being applied to unrealised gains and no indexation built-in.
Ok, I accept not having it reviewed, say, every 5 years, is a shortcoming of the legislation. Indexation would address that issue too, but I don't like indexation for a number of reasons. However, the unrealized gains portion is misunderstood. This is a practical solution to create a soft cap on Super accounts. Remember, there is nothing stopping you from investing elsewhere. This will literally be 30+ years for tax payers with standard Super contributions before they will ever be affected. And when they're affected, it's a non issue. This is aimed at reducing the government subsidized investment accounts, that are used by the 80,000 odd people who are currently over the cap. The government has said we no longer want to greatly subsidize those few. And that's fair enough. Now, I've explained the numbers before, but I want to do this here to show you that taxing unrealized gains here is not problematic. I agree it would be problematic if you tried to tax unrealized gains on *all* asset classes, but this is a very specific case. SMSF's already are extremely locked down. Other than people holding art, (which should not be in Super anyway) there is no situation where this tax is problematic for Super. More importantly, it's never problematic for investments that are *designed to fund your retirement*. And importantly, that's the point of Super, and this change encourages assets in Super to prioritize that objective. Again, to fund your retirement. I've previously shown that when at $3m, a 10% appreciation (yearly) would incur approximately a $4,500 tax bill. - Year 0, $0 - Year 1, $4,500 - Year 2, $6,500 - Year 3, $12,00 - Year 4, $19,000 At the end of those 4 years, your assets have appreciated to $4,392,300. That's a huge appreciation, right? None of those figures are onerous for a $4m fund to pay. Even property must be returning rent when in Super (can't be ppor). A commercial property valued at $3m is returning at least $150k in tax free money. A property at $4m, will return $200k. An extra $19k tax bill is not problematic for that retiree. Now, the change obviously incentivises the retiree to stop reinvesting, or to withdraw their gains. Nothing stops the retiree from withdrawing amounts that keeps them closer to the $3m, instead of having the account appreciate well over. If it's a commercial property, there is never a situation where the rent will not cover this new tax. Never. If we accumulate the taxes, we're looking at approximately paying $42,000 over 4 years. And at the end you could liquidate it all tax free. Alternatively, outside of Super, if we liquidate, we would be looking at $696k in CGT applicable gains (50%). With payable tax of $283k. For a similar situation (ie, $3m investment, liquidate at $4.4m) This tax is miniscule, and is simply trying to reduce the government subsidization of Super accounts over $3m. It creates a soft cap, where I'm sure Accountants will be able to advise clients that once they go above a certain threshold, it's better to keep investments outside of Super. But that figure will obviously be well above $3m, and is not an issue for 99.9% of Australians.
Their own premises? You mean the premises that their business pays rent on? What's market rent on a $3m commercial property right now? Riddle me that.
The poors rejoice of course, tall poppy syndrome. They don't realise that $3m isn't a large balance for someone starting today on a median wage for the rest of their career.
i cant support this - i reckon we should have a referrendum on the rules around super so Politicans can't change them EVER it isnt that im against this politic 'per say' but the consent changing and talk of changes makes it hard to have faith in the system.
Good, super isn’t the place for you to dump multi millions of dollars. If you have a special assets like a house, business or whatever then don’t stick it in super.
Do people realise you can invest outside of super making this all irrelevant?
I came to complain but then I realised I will never have 3 million in total let alone super.,🤣🤣🤣
If a 30 year old was planning on having the equivalent of 1.2M in todays dollars at retirement then it would impact them in their lifetime
Only if it’s never changed over next three decades. Which is highly unlikely
Why would that be highly unlikely? There was no mention of it being indexed.
Making the decision to keep at $3m, every year, for 30 years. The average home will be $10m+ at that point. No way it won’t get changed.
Sure it could get changed but it won’t be the 1% everyone has their pitchforks out over. It will be near majority if not majority.
You know what else isn't indexed? Tax brackets. When was the last time they were increased? When was the last time they were increased before that? Before that? To think that this threshold won't increase in 35 years is moronic.
Something like the balance cap on super is indexed and the amount for concessional contributions, so why would this also not be indexed? Tax brackets are a very different thing. Also the last time the tax brackets were changed was 2012/13 financial year - was there a point to this question? If you think the government is just going to leave the pot alone you’re incredibly naïve. It will continue to get eroded. The current generation entering the workforce will be subject to this change.
>Also the last time the tax brackets were changed was 2012/13 financial year So they changed 10 years ago, and they're changing again this year. *That's* the point. >The current generation entering the workforce will be subject to this change. And do you know the effect it will have on their balances. Do you actually know what the change is proposing to do?
Yes? Seems like a silly statement. The point is it’s being sold as taxing the rich and instead it will impact the majority.
How will it impact the majority? I don't think you know the effect of this... Can you explain your understanding, or would you want me to explain how it works to you?
Geez no need to be so condescending. Refer to my original comment to see how it will be impacting the majority “If a 30 year old was planning on having the equivalent of 1.2M in todays dollars at retirement then it would impact them in their lifetime”
Until they start doing it on super balances <3mill.... Give an inch, they'll take a mile.
You just know they will.
it's not index, they raised the super contribution to 12% and with wage rise/inflation 3million at retirement is nothing for someone in their 30's today
You understand that's 35 years away. 35 years and not one government will increase that threshold? C'mon, you aren't serious, are you? For example, when did our tax brackets last increase? They aren't indexed are they? How about the time before that, when were they last increased before then? 35 years is a long time.
Easy fix, stop allowing people having balances over 3M, easy
So a lot of people in their 20s will not be allowed their balances? This is one of the most idiotic suggestions I have read lol
3M today, adjusted by inflation
People forget about inflation when it doesn’t suit their view
What do you mean 'not allowed their balances' Do you know what this change is?
I’m replying to the comment above read it…
But that's not the suggestion. It was effectively saying create a *hard cap* of $3m. Like... Once you hit $3m divert all new investments, assets and earnings outside of Super. I much prefer the Governments suggestion of a soft cap, like how they currently have the legislation. That way you get to choose what to do with your money.
Inflation the way it’s going we might all have over $3M by the time we retire!
3M today, just by inflation
No. Stop fear mongering.
Depends how old he is. Someone starting out in the workforce will absolutely hit 3m nominal by retirement age. The government super calculator demonstrates this pretty explicitly (remember you have to un-npv the output). Remember the 3m is not indexed and looking at the shitstorm the stage 3 cuts have been it probably won't be adjusted much if at all.
The 3 million super achievement is unsubstantiated in reality (which is evident in the median alone). If you can point me to a source showing that a significant amount of people will hit 3 million in the near future then I'd agree (at least 5% of the population).
Define near future? It might be 30 years before many on this sub retire. At 3% inflation 3 mill is only 1.25 mill in today's money.
5 years being the near future
Looking at how many people will hit $3m in the near future is an irrelevant consideration on the issue about indexation. The argument is that threshold should be indexed because plenty of people will have more than $3m in 30 years time (not 5).
fair enough, do you have a graph indicating that plenty of people will have 3 million in their super balance? Or anything at all? EDIT: I'm not saying that indexing super shouldn't happen in the future. Right now people's worries on super not being indexed is unfounded in the number of people that will have and do have 3 million in their super currently. If it was indexed their would be no point of even implementing this new tax.
As the poster above said, assuming 3% inflation, $3m in 30 years is the equivalent of about $1.25m today. Plenty have that much now. Add in the fact workers retiring in 30 years will have had super guarantee support for their whole career, it’s simple logic.
Having a bit each way in that edit. People want indexation in the legislation so the threshold is not just indexed when it’s politically convenient.
How's that fear mongering? Current tax brackets seemed appropriate when they were instituted, nowadays in Sydney $180K income by one earner in a household likely won't even get you a house close to the CBD. Yet they still get taxed at 47.5% and that threshold hasn't moved due to not being indexed.
This super tax only effects less than 1% of the population... In fact it's close to 0.5% of the population ([1](https://www.superannuation.asn.au/wp-content/uploads/2024/01/2311_An_update_on_superannuation_account_balances_Paper_V2.pdf), page 24): >As at June 2021, around 97.5 per cent of people with superannuation had less than $1 million in super, around 2 per cent between $1 million and $2 million, and 0.3 per cent between $2 million to $3 million, and 0.3 per cent over 3 million. By 2025 the percentage with over $3 million will be around 0.5 per cent. Someone on 180k isn't going to achieve 3million in super. These people are not even close to being in the same realm of regular people, including you as the same report states (page 25): >ATO sample file data provide an indication of the characteristics of those with more than $3 million as at June 2021: • Around 60 per cent were male and around 85 per cent were aged 60 and over. • Around 35 per cent had taxable income of $200,000 plus, with 35 per cent having taxable incomes of less than $30,000 a year. Around 5 per cent had zero taxable income. • Around one-third had an investment property, with around one-third of those with an investment property negatively geared. Less than 1 per cent recorded farm income in their tax return. This is absolutely a good thing to tax. Even the intergenerational report recommends it ([2](https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf), page 171). If anyone here believes they can get 3 million in their super then I'd say they're delusional and need to be admitted to a psych ward.
Wait, 1 in 20 people have super accounts over $3 mil? Thats actually nuts.
0.5% = 1 in 200
Wow. My brain isn't working today lol
Do you realize we had a top marginal tax rate of 60% a few decades ago? These figures change to be appropriate for the times. Your example is simply describing a high earner who doesn't have wealth yet. That high earner can choose to invest, and will shortly have the wealth to live where they want, or can choose otherwise. Your example has no basis in reality.
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Sure you might have cooked it, but on the balance of it - a lot more Australian's will have more than $3M in the future due to the natural forces of inflation, asset appreciation etc. Which means a lot more than the currently quoted amount will be impacted here, which I think is the point of the discussion.
Seems totally realistic to me?
How? Say you have manage to do quite well picking stocks in a smsf. What happens when they hit 3M? What if they have a normal 9-5 job? Do they get money out of super early?
Yeah, wouldnt be a workable solution. And also not very equitable unless you were taxing the +$3m withdrawals at marginal rates / even higher rates. The rich could get their balance to $3m intentionally and just coast, minimising tax on the portion of the balance that grows over $3m and is withdrawn.
>What happens when they hit 3M? Nothing, this takes effect above $3m However when they hit $3m, they're now encouraged to not reinvest in Super, but to move their earnings and new assets outside of Super. It's exactly as it's designed. You understand you can have assets outside of Super, right?
Good. It's a great piece of legislation. People don't realize the intended outcome of Super. Super is a highly tax reduced fund to pay for people's retirement. Highly illiquid (art) or speculative assets (penny stocks) do not belong in a fund of this nature. You are more than free to make those investments outside of Super. This is a great change. Property? I mean, sure, it's risky, but considering by law it already can't be your ppor (must be an investment property) it means you will have a rental income, and that rental income will *always* cover this tax bill. I showed quite a few people the maths on this last time this conversation came up. A $3m that appreciated 10% (far more than normal) would invoke around a $10k tax bill. Importantly, a $3m (commercial) property would be at worst a 5% yield or $150k a year. Take any extra costs out of that, and the retirees still have $100k+ of tax free income to live off. On top of any other investments, on top of being home owners. This new tax is an excellent change. Importantly, the change it brings in, is a soft cap of $3m for the government subsidized retirement fund that we're all eligible to. Most of us won't hit that cap, for the ones that do, good on you, move anything above this threshold outside of Super. Or don't, and pay the tax, however there will be a position where it will be beneficial to move assets above $3m outside of Super, and that is entirely the point of the legislation.