SMSF #FamilyTrusts #TaxChanges 📈🏦💰
The Australian government’s proposed tax on superannuation balances above $3 million is causing concern among investors, who are considering alternative tax-effective structures such as family trusts and companies. SMSF Association CEO Peter Burgess warns that the government may be “naive” in assuming its projected revenues from the tax will not be affected by investors selling or transferring targeted assets.
The new tax on balances above $3 million has been met with opposition, particularly regarding the calculation of taxable income based on unrealised earnings. Currently, super funds in the pension phase pay zero tax on earnings for balances below $1.7 million, with earnings on any excess amount in an accumulation account taxed at 15%. Under the proposed changes, the total super balance above $3 million will face an additional new headline tax rate of 15% on top of the existing tax, set to apply from July 1, 2025.
Many important details, such as indexation of the $3 million balance cap and the taxing of unrealised gains, are still being considered by Treasury and parliament. Investors will need to decide whether to leave money invested in super and be taxed at an extra 15% for amounts above $3 million, or switch to an alternative investment structure taxed at progressive marginal rates.
Self-managed super funds (SMSFs), with over a million members and $820 billion under management, are considered a prime target if unrealised gains push values above $3 million. Fears about possible new tax liabilities on popular illiquid assets, such as commercial property, are already causing some members to consider selling.
Investors with less than $3 million may be discouraged from growing their super balance to more than the new tax threshold. Many asset-rich, cash-poor super members may have no choice but to sell because they can’t fund super commitments and extra costs.
Family trusts achieve top ratings for asset protection, flexibility, and access to funds, but can also be expensive to run and complex, depending on the underlying asset mix and structure. A discretionary trust will typically cost $1,000 to $2,000 with annual costs of around $4,000, depending on the provider.
As key elements of the tax are being finalized, potentially affected SMSF members are advised to “be aware and don’t panic.” It is vital that investors consider the implications of different structures before investing, as it impacts their ability to access funds, income tax payable, capital gains tax implications, asset protection, and running costs. 🌐🔍📊
Source: https://www.afr.com/wealth/personal-finance/how-family-trusts-and-companies-can-help-you-avoid-new-super-tax-20230501-p5d4p3
