Investments, Tax

Soft cap to change SMSF portfolios

tax SMSF strategies

SMSF investment strategies may change significantly should the proposed tax on individuals’ super balances above $3 million be implemented.

A mid-tier accounting firm expects the government’s proposed charge on member super balances above $3 million to spark a significant change in SMSF asset allocations and investment strategies in order to boost liquidity and allow any new tax liabilities to be paid from the fund.

HLB Mann Judd Sydney superannuation director Andrew Yee revealed his firm is already seeing clients reconsider whether it is appropriate to hold illiquid assets, such as property, in their SMSF that are not generating income as they begin to prepare for the impact the measure will have for their situation.

“[They’re thinking these assets] may be better sitting in another [type of] entity,” Yee said at a media briefing held in Sydney today.

“It means property may be [exited] from super, as well as private equity [holdings, assets] where there are no liquidity events. I think that’s maybe where [superannuants] will change their investment strategies.”

HLB Mann Judd wealth management partner Jonathan Philpot concurred SMSF members with high allocations to property are the ones who will be hit the hardest by the proposed $3 million soft cap, particularly funds that are having to support a pension as well.

“We’ve always naturally steered our clients away from having too much property in the fund just from a liquidity view with paying a pension. A 5 per cent increase in [the minimum] pension is a real issue, so how on earth are you going to pay a 30 per cent tax on an unrealised gain and pay a pension as well?” Philpot said.

At this stage, Yee explained HLB Mann Judd’s client process regarding the proposed 30 per cent tax on SMSF member balances above $3 million has been focused on education as opposed to immediate responsive action.

“It is about education. We’re telling clients don’t panic [because] we haven’t seen the full details [yet]. There may be changes depending on what happens [with the consultation process] to wait and see,” he said.

“Clients may commence minor planning, but we’re telling them don’t go overboard.”

Anecdotal evidence has suggested SMSF members are already changing their investment plans in response to the $3 million soft cap.

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