A superannuation expert has advised against the exit of monies from SMSFs and the superannuation system immediately in response to the government’s proposal of imposing an additional tax on member balances over $3 million.
“It’s still a proposal [so] don’t rush to remove balances or benefits [to reduce total super balance amounts to] below that $3 million limit. As you know once the amounts are withdrawn from super it’s really hard to get them back in, particularly with the contribution caps that we’ve got,” Institute of Financial Professionals Australia head of superannuation Natasha Panagis told webinar attendees recently.
To this end, Panagis reminded practitioners the $3 million threshold was not a hard cap, meaning balances above this amount can remain in the retirement savings system but will be taxed at a higher rate and suggested superannuation could still be an advantageous investment vehicle.
“The tax position outside of super could be worse [for certain individuals]. Remember the maximum tax rate [under the proposed measure] is going to be 30 per cent so super could still be a good investment structure and tax structure. So that’s something to think about,” she noted.
Should the new policy be implemented, she pointed out practitioners will have to monitor the liquidity of those SMSFs with member balances over $3 million, particularly seeing the 30 per cent tax will be levied on unrealised capital gains.
“That’s really important for those funds that have lumpy assets such as properties, farms and things like that,” she said.
According to Panagis, if the additional tax is to be paid by the SMSF, advisers should take the money from the segment of the fund that offers the best outcome in the circumstances.
“If the individual has both accumulation and pension accounts, then maybe consider withdrawing [the money] from the accumulation phase to maximise the tax-free retirement pension,” she recommended.
“If that additional tax is going to be paid from a pension account, then [you should] consider making a lump sum withdrawal from that pension because this will create a debit for transfer balance cap purposes, which would be quite helpful if the client wants to commence another pension in the future.”
