High net worth SMSF trustees in retirement phase are exploring non-superannuation investment options in light of the government’s decision to push ahead with the $3 million tax on super earnings.
HLB Mann Judd Sydney superannuation director Andrew Yee revealed his SMSF clients are primarily concerned with the implications of the $3 million soft cap and inquiring about the appropriate course of action to take in managing their tax affairs.
“Our clients are asking: ‘If we are in retirement or the pension phase, should we be taking money out of super? Should we stop contributing to super as we are getting closer to that cap?’” Yee told selfmanagedsuper.
“Clients are beginning to look at other entities or other forms with which to put their retirement money [into]. We can’t really give them specific advice because we’ve still got a couple of years to go and we don’t know how that will pan out, so we can only give general advice at the moment.
“They may move some money out of the fund and put it into a family trust and manage their tax position that way. They may have multiple beneficiaries in the family trust for which they can distribute that income.”
He further noted trustees are considering withdrawing funds and giving them to their children or rearranging assets within the fund. They may also transfer property ownership to external entities or explore alternative methods of property ownership.
The taxing of unrealised gains, one of the most disputed aspects of the cap, has also led trustees to reconsider holding certain assets within their SMSFs due to the added obligations it entails.
“If you’ve got assets such as property or unlisted assets, they need to be revalued every year and then tax applies on the revaluation. [Clients] might choose to move other assets out of their super fund into entities that don’t need to be revalued or don’t get taxed on unrealised gains,” Yee said.
“It puts the onus back on trustees, advisers, accountants and auditors that have signed off on the audit. Can they sign off on the valuations?
“It’s very difficult if it’s something like a property or unlisted assets or private equities for which you can’t get market valuations easily.
“The industry is getting worked up about taxing unrealised earnings because you’re taxing something that hasn’t been earned. It’s unprecedented in the Australian tax system.
“People are also worried that if they start doing this to super funds, where does it end? Will it start flowing to other entities and other ways of taxing people?
“[If implemented as planned], this will create huge concerns for the industry.”