Letters: The super changes, what's at stake, and back to the future.

Who’s affected by the super changes?

With the All Ordinaries accumulation index up 24.9% since July 1, 2012, even a fairly conservative portfolio of 45% cash investments and 55% share investments, including International ETfs is up 12%.  This means funds down to $800,000 will be impacted by the tax not the 16,000 funds of $2 million or more that Bill Shorten suggested. Anyone who saw the market upturn early in July last year and got back into the market early could well be up nearer to 20% and this will impact funds down to $500,000. Some solutions to minimise the impact would be switching to low yield stocks and going for capital growth.  Another alternative is paying the pension by selling off existing stocks with large capital gains or poor performing stocks that were held before the proposed super tax changes come into force and are therefore protected from CGT.

J Roberts

Bruce Brammall’s hysteria on the new super rules was over the top (Busting the super reform myths). I don’t think too many people will have a problem with having the first $100,000 pension income tax free for each person in their SMSF.

J Doyle

How much is at stake?

The article (Busting the super reforms myths) fails to spell out just how small the actual tax that would need to be paid actually is. In Myth #1 the example of a fund earning $105,000 and becoming eligible to pay take fails to mention that the 15% tax would only be on the $5,000 that exceeded the $100,000 tax free threshold. In other words $750 tax on a total income of $105,000 actually amounts to less than 1% tax on the entire income.  Of course mentioning details like this would have made the article much less exciting.

I disagree that this tax is in any way retrospective. It will apply to earnings in excess of $100,000 after the legislation is passed. These are future earnings. Suggesting that it is a retrospective tax is the same as saying any changes to our PAYE tax rates are retrospective on all your passed earnings. A completely ridiculous statement. Even if you are trying to imply that the use of “retrospective” is based on the investment decisions previously made, then there is still no tax on withdrawing your super balance as a lump sum with no tax penalty. So if you think you can get a better tax arrangement outside of your super account then you are free to do so.

Mentioning Cyprus in this article is clearly designed to cause fear in the financially uninformed. In Cyprus they are taking money from depositor’s bank balance as opposed to a tax on the earnings of the balance. The two situations are not even close and should not be mentioned in the one article.

I subscribe to Eureka for factual investment advice and do not expect to read articles that appear to have a secondary political agenda.

M Fleming

To more clearly demonstrate to readers of Eureka Report what is proposed by the current government, in respect to taxing at 15% the net income credits to a members account which exceeds $100,000 in any financial year, I believe a few examples should be used to demonstrate the starting principals and the changes as the years roll on using the same base figures.  For example, a fund might have a husband and wife both in pension mode with one members non concessional balance at the start of the year of say $811,500 (27.16%), the other with a concessional balance of $276,400 (9.25%) and non-concessional balance at the start of the year of $1,900,000 (63.59%), i.e., total members funds of $2,987,900.

The income of the fund comprises dividends, trust distributions and interest of say $184,000, plus imputation credits say of $39,300,i.e., total income of $223,300, less expenses $1,400, realised capital loss $4,200 and decrease in value of investments (marked to market) $10,800, i.e., total expenses of $16,400, leaving Net Income after imputation credits of $206,900. At this present time the members distribution would be $56,194.04 (27.16%) to the first member, with the balance to the second member of $19,138.25 (9.25%) plus $131,567.71 (63.59%) for a total to the second member’s accounts of $150,705.96. For this account a few questions are raised about the excess earnings of $50,705.96 above the $100,000 cut off limit, being totally taxable, or would adjustments be required to arrive at the taxable amounts, i.e., exclude market value adjustments?        

A Ellis

Those unfortunate people earning a mere $104,000 a year per individual are going to be slugged … um… 15% of $4000. That’s $600.

What an outrage.

Oh come on, why are so many contributors to Eureka so greedy?

SM

Back to the future

Robert Gottliebsen and Eureka Report are to be congratulated on largely neutralising the impost of the super tax, which has recently been announced by the Gillard government. It’s a pity the same outcome wasn’t achieved on the 15% Super Surcharge instituted by Howard and Costello and operational for several years in the late 90’s. This impost by the Liberal government at that time cost me a very substantial amount in taxed contributions. So now it’s back to the future!

G Lodwick

The proposed taxation of pension fund returns sounds very much like the reasonable benefits limits which were in force some years ago. They Libs got rid of them because the process cost more than the revenue raised, making pension phase funds tax free. Do you guys think there is some similarity?

D Bellamy

A fair tax!

Firstly, I believe that Labour’s Super Pension tax is actually fair!

While reading Bruce’s article (“Busting the super reforms myths”) it came to me that I should look further down the road to the converting of the pension into a distribution to beneficiaries. While this phase will be someone else’s concern I have spent a long time in legitimately minimising my tax liability and so was intrigued to follow the money. My SMSF will still have funds in it to distribute when I drop off my perch.

I assume the assets have to be “liquidated” in order to be distributed and so this will trigger Capital Gains Tax. If a full year of dividends has been paid and then the CG has to be added (less the 1/3 rule) the income could easily achieve >$100,000 and so the ATO collects 15%. On distribution to the beneficiaries of the concessional portion of the assets another 15% goes to the ATO. Is it wrong to hope to put off dying til the beginning of the financial year?

(My concessional contributions cannot be entirely converted to non-concessional without achieving a 15% contribution to the ATO)

NN

Ethical investing

I asked a few weeks back if you have archived ethical investment articles. I have not found anything through your search engine- is there anything I have missed?

CT

Editor’s response: We received a similar letter late last year – (see here), and while the selection is limited there are a few in the archive just by searching “ethical”.

Government super benefits

The Eureka Report is essential reading for my understanding of the national and global economies and my super fund.

May I respectfully note that you and others, to the best of my knowledge, have overlooked the advantage to the government of the significant funds in superannuation that are invested in equities and infrastructure; without which we would have greater foreign ownership of equities and more dependency on overseas funding for infrastructure. The certainty of this funding is important for the future of (our) investment in infrastructure.

Without wishing to be too bureaucratic I support the establishment of Infrastructure Australia as an independent authority, which would have the responsibility of ‘approved’ infrastructure investments that are in the national interest. Every superannuation fund would have to invest 1% (minimum) of their fund, increasing to 15% over 15 years, in ‘approved’ infrastructure projects which would borrow the money in accordance with their (approved) construction schedule at 3% interest p.a. tax free every year to be repaid over 15 years. So, in current terms this would amount to $15B p.a and total borrowing of $225B after 15 years. For every $ in excess of $2M held in a fund 50% (minimum) would have to be invested in these projects. Projects would be underwritten by the State/Federal Governments and in the case of Public-Private Projects by the private partner in proportion to their holding. Individuals would receive Project reports every 6 months with an agreed repayment, which may not start for 3-5 years. Individuals would decide which project(s) to support so they would need to appeal to the thinking investor.

I could go on for a while on further thoughts but will leave that to you, should you consider it worthy of thought.

DK

Quick questions

1. I read Adam Carr’s recent article on the Norwegian krone with interest, but how does one invest in this currency?

2. Is there going to be a Eureka Congress this year. I have expressed my interest, but have not heard anything

GC

Editor’s response: Most derivative and currency brokers (such as IG or CMC) should be able to help with currency investment. Plans for Eureka Congress are under way, and hopefully more information will be available soon.

What may have been

Robert Gottliebsen defends the basis for his support for the tax last week on the basis of what ‘may’ have been. I arrived in this country back in 1983 and quickly became aware that there was no pension heading my way other than through my own efforts. In that sense I’ve had to deal with every change to the superannuation system, tax breaks, etc. I’ve followed the rules and now paid tax on the way in and paid tax on the way through (unlike other countries) all on the understanding that when the money comes out after I turn 60 it is tax free.

Now, two years from 60, I find out I’m likely to pay tax because I’m ‘wealthy’. Thanks for nothing.

B Cirrus