SuperAdvice with Olivia Long: 8 June 2023

Hello and welcome to this month’s super advice podcast, I’m Olivia Long – managing director of SMSF at Prime Financial and Eureka Report’s SMSF coach. It’s great to be here.

I’ll be hosting this podcast every month, so if you’ve got a question for our next episode, please send it to superadvice@eurekareport.com.au.

Today’s podcast is a podcast that’s not a podcast but written answers to your questions. Next time – a podcast! 

Before we get going, please remember that my answers today are general in nature so they may not be appropriate or right for you.

Table of contents:
Guests or No Guests?
Transfer Balance Caps
Bob’s Lottery Win
Concessional Contributions
3 Million Super Questions
Tax and Fees on HostPlus
How Much for an Accountant
Tax on the 3 Million Super Issue
Fees for Financial Planners

Ian: Welcome back to the airwaves. Your shows with Alan were always entertaining and informative. 

The older I get, the lazier I get - industry funds work fine for me. However, besides being an SMSF whiz kid, you are also a pretty good stock picker and market watcher. Will you be fielding questions on non-super topics as well. (I do tire of the greed of superannuants asking how they can squeeze every last nano cent out of the tax arrangements). Will you be having regular guests or different guests or none?

Olivia: Hi Ian. Thanks for the feedback. At this stage it’s just me answering questions each month, but great idea to get some other experts involved. Whilst I’d love to talk stocks at this stage I’m limited to talking about super!

Brett: Am I right in my conclusion from my research that once I have retired my TBC is set in stone, in my case $1.6 million. I assumed that the indexation would apply to all TBC's existing and yet to be activated but this does not seem to be the case. It seems inequitable that someone who "puts off" retirement can access a higher TBC, $1.9 million as of the 30/06/2023 (as I understand).

I appreciate that the cost of living has risen considerably since the TBC was established, however, this is the case for everyone. The cost of living has gone up for me as well as my friend who is the same age but delayed retirement until after the 30/06. I cannot understand how this is fair or equitable? Why does the government feel that person B needs $300k more in super than I do. It seems that even if I return to work my TBC is set at $1.6 million.

Olivia: The way it works is if you commenced a pension when the Transfer Balance Cap was $1.6 million and utilised the full $1.6 million then you don’t get the benefit of indexation. If you hadn’t fully utilised the cap then there is a percentage of the increase that you may be entitled to. As you point out with the cap going to $1.9 million on 1 July any members not currently in pension mode at present will get the benefit of the full $1.9 million if they commence a pension. Having said all of this, if you have between $1.7 million the current total super balance cap but under $1.9 million in your member balance across all super funds and are under the age of 75 you will now have the opportunity to make a Non Concessional Contribution with the cap increasing so even though you may not be able to add additional funds to the tax exempt part of your fund you may still have the opportunity to boost the balance of your super fund from 1 July 2023 with that cap increasing.

Brett: Another question is do you really think that the Government will try to tax unrealised gains in super over $3 million or is this smoke and mirrors? I personally am not opposed to some form of upper limit but feel it would be far simpler to simply tax super income over a high watermark or simply increase the tax from 15 per cent to 30 per cent on accumulation accounts for funds over $3 million.
It seems to me that the Treasury is being influenced by industry funds whose only concern is to stay in business and make money. 

Olivia: At this stage nothing has been actually legislated and with the potential change not coming in until 1 July 2025 and another federal election occurring before this, things may change. However if we look at how it appears to be working if a member balance at 30 June 2025 is 3 million and then as at 30 June 2026 it is $3.5 million then the earnings are 500k. The percentage increase is approximately 14 per cent which would mean 15% x $500,000 x 14% is an additional $10,500 to pay for corresponding income over the $3 million balance which seems to include the unrealised capital gains.

Bob: Now let’s say you come into a sum of money. This could be for example, an inheritance or an insurance payout, a lottery win etc. Can this money be contributed into your super or your partner’s super as a lump sum, in the same manner as a downsizing contribution?

Olivia: Hi Bob. Sure can, subject to the contribution limits as either a concessional contribution if you have room available or as a non-concessional contribution potentially utilizing the bring-forward rule depending on your total super balance. If you’re eligible and under the age of 75 you can each contribute up to $330k in one go. The amount you can contribute though as a Non Concessional Balance is dependent on your total superannuation balance across all super funds.

Andrew: Is it still possible to claim a concessional contribution in June in one financial year (say 2023) and getting your SMSF to allocate it the following month in July 2023? Effectively claiming more than the $27500 concessional contributions in 2023 tax year. And the unallocated contribution made in June 2023 will count or be allocated in the 2024 tax year?

Olivia: Hi Andrew. Great news is yes. It’s still available.

Charles: Our SMSF has more than $3 million. It is split around: 
Direct property: 41%
Equities: 33%
Fixed interest bonds: 17%
Cash: 9%
Question: if proposed tax on SF over $3 million proceeds and start date for calculation is year beginning 1/7/25: 

• ·Is 30/6/25 the valuation date from when unrealised gains are calculated, or from when asset originally acquired, or other start date?
• ·If the SF pays tax on an unrealised gain, how does that affect any subsequent realised capital gain?
• ·What happens when you have unrealised gain one year, and unrealised loss in next year etc?
• ·Is the capital gain on a realised asset sale still an effective 10% although tax on unrealised gain will be 15%?

I’m sure there will be a million more questions from subscribers. Thank you.

Olivia: As mentioned earlier we are trying not to speculate too much on this proposed measure as there is another federal election before this is due to come in and things may change. I have however provided an example on how this may look to Brett (above).

Having said that, if the $3 million is split across more than one member and you individually have less than $3 million each then this won’t affect you as the cap is per member not per fund.

Warren: Hope you are well and as you may be aware HostPlus offers a range of funds both in accumulation and draw down (pension) phase to SMSF investors see here https://hostplus.com.au/smsfs/options.

The two of most interest to me are Balanced and Infrastructure (I already invest in their infrastructure fund) all of which show good returns over three years (note infrastructure was changed a while back so max history available is 3 years) and come without the headaches of managing your own portfolio so to speak.

My questions regarding these funds is firstly tax. HostPlus pays tax on all the returns so the stated returns shown are net of their fees and tax implications, what are the good and bad implications for a SMSF investor of the fact they are paying tax on your returns in said portfolios?

• What do you think of their fee structures on actively managed funds?
• Any other points you may feel beneficial to know or understand relating to their funds?

Thank you for your time and look forward to seeing/hearing your insights here.

Note: Pension phase funds have no tax implications hence returns are higher.

Olivia: Thanks Warren.

Potentially Warren the SMSF Trustee who has purchased 'accumulation' phase units is actually paying more tax than they otherwise would if investing in a regular managed fund or ETF where tax implications are passed through to the investor.

This is because in accumulation phase the SMSF has certain expenses that are tax-deductible, such as admin costs for example.

As the investment in HostPlus is internally tax paid at 15 per cent for accumulation units, there is essentially no taxable income to the SMSF against which to claim a tax deduction to reduce the overall tax rate of the SMSF.

What HostPlus charges for these investment options is a really important consideration. I had a look at their PDS which shows an illustration of their fees for the Balanced option. You need to look at whether paying an annual admin fee, Trustee fee, investment fee and transaction fee - and on their balanced fund that all adds up to $712.75pa for a $50,000 investment - is really worthwhile compared to a lower cost actively managed fund or ETF for example. One of the benefits of an SMSF can be lower admin costs especially where you're investing directly into the market or using low-cost managed funds or ETFs.

You also need to compare returns against other providers Warren, that's not something I can judge for you though. There are a lot of comparison sites out there.

Steve: Hi Olivia, I’m trying to get an idea as to what would be a fair yearly cost for an accountant to charge me for doing the tax return and audit for my family super. No investment advice, just the mandatory activities. Our SMSF is about $2.5 million currently, all ASX shares.

Olivia: Hi Steve. The cost shouldn’t be linked to the value of your fund and ASX shares are generally data fed. I would say $2k - $2.5k including audit is the current market rate.

John: Hi Olivia,

Can you clarify how the tax on super accounts over 3 million will work? Will the 30 per cent tax apply to the increase in value of the super fund over the financial year (i.e. a tax on inflation) plus the tax on the income? If the value of the super fund decreases do we get a tax refund or a least a credit to apply to future years?

Olivia: What we know of so far is that anything over 3 million per member will wear a 30 per cent tax rate. If the value of the balance in the members’ account decreases below the $3 million then you wouldn’t expect the additional tax to apply but this would depend on how they measure it and when they do the cut-off. You would expect that if it is taxable on unrealised gains then there will be a tax credit available to be applied to future years.

Stephen: On the subject of fees for service relative to financial planners what justification could a financial planner have to charge you an ongoing percentage (fee) based on the overall amount to be invested. This percentage quoted to me is addition to actual fees for preparing a financial plan preparation and implementation of the plan.

Olivia: Hi Stephen. Generally the benefits for engaging a financial planner on an ongoing basis is they conduct regular reviews of your fund’s performance and make adjustments where necessary. As a client of a planner you also get access to investment opportunities you otherwise wouldn’t as a self-directed Investor. They’re also going to identify and advise you of strategic opportunities as they arise. Most importantly, it frees up the stress for you of having to manage the fund on your own! A key message I like to stress is you don’t know what you don’t know – that’s why we have experts.

That’s all for today, thanks for joining me.

If you’ve got a question for our next episode, please send it to superadvice@eurekareport.com.au.