Govt sets $100,000 a year super threshold

[dan c]

Can we all remember that Super is already taxed on the way in, so taxing on the way out also is "double tax".

It's not taxed on the way out. There is a tax on fund earnings. Fund earnings are currently taxed while the fund is in a accumulation phase, but not pension phase. This change will tax earnings in pension phase, over $100,000 per year. It's not a tax on what is withdrawn, and those over 60 can continue to withdraw as much as they like tax free.

If people actually read and understood the changes, there wouldn't be this level of outrage and hyperbole. But it's easier to whinge and moan about how these changes will bring about the end of the world.

 

[geoffw]

Can we all remember that Super is already taxed on the way in, so taxing on the way out also is "double tax".

I don't believe it is.

I think that if you're under 50, something like $25,000pa can be contributed before tax- which includes the employer SGC.

And when it is paid out annually, it's not taxed- proposed new arrangements will limit the tax free income to $100K pa.

So it is a very tax effective way to save money for retirement.

It is not a double tax- it's not even close to a single tax.

 

[Ideo]

It's not taxed on the way out. There is a tax on fund earnings. Fund earnings are currently taxed while the fund is in a accumulation phase, but not pension phase. This change will tax earnings in pension phase, over $100,000 per year. It's not a tax on what is withdrawn, and those over 60 can continue to withdraw as much as they like tax free.

If people actually read and understood the changes, there wouldn't be this level of outrage and hyperbole. But it's easier to whinge and moan about how these changes will bring about the end of the world.

C'mon. You know that people don't actually research things. They just parrot whatever their chosen brand of media manipulator spouts.

 

[dan c]

Can we all remember that Super is already taxed on the way in, so taxing on the way out also is "double tax".
It discourages investment and discourages working harder.
This has a negative multiplyer effect for the whole economy.

Let's say you are self employed, earning $80,000 a year. You decide to put in $25,000 to superannuation.

The Superannuation contribution is taxed at 15%, or $3750, in the fund.

You get a tax deduction of $25,000 for the contribution, saving you $8500 in personal tax.

So you are ahead by $4750 for the year.

Where's the discouragement? Where's the negative multiplier?

 

[Mr. Fabulous]

Let's say you are self employed, earning $80,000 a year. You decide to put in $25,000 to superannuation.

The Superannuation contribution is taxed at 15%, or $3750, in the fund.

You get a tax deduction of $25,000 for the contribution, saving you $8500 in personal tax.

So you are ahead by $4750 for the year.

Where's the discouragement? Where's the negative multiplier?

'Baaaahhhhh! Tony Abbott said it was baaaaad, so it must be baaaaad. Baaaaahhhhh!'

 

[MIW]

Yes it does. Because they have paid no (or very minimal) tax on the sale of their business, no tax on earnings on this money once the fund is in pension phase, and no tax on the withdrawals from the fund.

Originally, pension phase was tax free in the fund, because the pension payments were taxed in the hands of the recipient.

This changed in 2006, when any amount withdrawn once the retiree reached 60 was tax free.

Rather than introduce this $100,000 limit, they should have just changed it so that there was no difference between accumulation and pension phase. Tax all earnings in the fund at 15%.

So in your opinion, taxing 15% on contributions (money coming in), taxing 15% on earnings (money earned within SMSF) and now taxing 15% on withdrawals (even in pension phase after $100K threshold) seems fair? That would imply 45% tax?
IMO, why would I bother putting money into Super, being self-employed (not employee) when in business I may be only taxed 30%?
This would permit me to have immediate access to funds, after 30% tax, no age restrictions and any investment strategy I could chose.
Anyway, either way I do not trust any government, the longer I live and the older I get.
In my situation I have been penalized retrospectively and for my creativity.
Retrospectively since I have been directing more to Super than to individual investments - my past choice, perhaps silly me - for creativity since I managed to deliver over 200% ROI in one year.
Yes, unfortunately I already generate over $100K and have few years till retirement, so I may be the minority, and let see how many will wish to cut the taller poppy????
I thought the aim of Super was to lessen the burden of people on government pension..now I think it was to build a large coffer for them, so when in need, they can help themselves. Who is to say that in the future all the money won't be taxed, or, whatever?????
However, I still don't understand why we have different Super rules for people in government and everyday Australians trying to make their lives better in retirement (it's not as if we can access these funds anytime)?

 

[Mr. Fabulous]

So in your opinion, taxing 15% on contributions (money coming in), taxing 15% on earnings (money earned within SMSF) and now taxing 15% on withdrawals (even in pension phase after $100K threshold) seems fair? That would imply 45% tax?

What part of 15% tax on earnings do you not understand? Also, you pay 30% tax on company earnings, from $1 (minus deductions, of course).

So, based on my understanding of the proposal, if you have a SMSF in pension phase, and the pension earnings are equal to $100,000, then you pay no tax on those earnings.

Now, let's say your business has $100,000 of net earnings. BAM! 30% tax! I can see why you would want to keep the money in the company.

From: Super Guide

The super changes impose a new tax of 15% on pension earnings above $100,000 a year, per member.

Note: Pension earnings are not the same as pension payments to the fund member, which remain tax-free at all levels.

 

[MIW]

It's not 'anti successful people'. That doesn't even make any sense. The Howard Govt introducing tax free income from super after 60 was a stupid move in the first place. Old people are a massive burden on taxpayers and it costs a lot of money to keep them alive. We should be making them contribute at least something to the expenditure.

If it was up to me, the tax free income idea would be abolished in its entirety and labelled as the cheap vote grab by a desperate garden gnome that it was.

Gee, I presume you must be quite young, as I believe that one day I hope to grow old too... I also believe that the old can no longer work and contribute but didn't they contribute throughout their working life?????
I may be off the statistics here but if around 85% old pensioners are on government pension/support (perhaps someone here knows the true figure) wouldn't it then make sense to try to make more retirees self funded so than as you say, "We should be making them contribute at least something to the expenditure". Please tell me how government funded retirees can contribute to expenditure when the money if funded by government? So you like to penalize those who studied, worked, saved and invested all their life and then if they managed to be self funded now they should give a slice back to government so hopefully they will pass to those that did not mange to save anything?
I just don't like how the few (self funded) have to now manage to support most.....
I agree, we are approaching interesting demographic change, where the baby boomers will be retiring, downsizing, etc.. but there are other ways to run the economy rather than to go retrospectively after the money that people made the choices throughout their entire working life!

 

[Mr. Fabulous]

MIW, if you don't like the idea of paying tax on your retirement earnings, don't use any of the facilities that are paid for and maintained by the taxpayer in your retirement. The cost of maintaining said facilities does not magically stop when you retire.

 

[geoffw]

So in your opinion, taxing 15% on contributions (money coming in), taxing 15% on earnings (money earned within SMSF) and now taxing 15% on withdrawals (even in pension phase after $100K threshold) seems fair? That would imply 45% tax?

As I understand 15% on contributions is only on the amount above the concessional allowance. So contributions up to $25k don't get taxed. If I had earned that money I would have paid income tax on it. So even with contributions over the limit I'm ahead. Really a negative tax.

15% on earnings is not on the amount put in. It's only on the profits made.

And of course 15% going out is proposed for earnings above $100k.

That hardly amounts to 45% of the amount put in.

 

[MIW]

What part of 15% tax on earnings do you not understand? Also, you pay 30% tax on company earnings, from $1 (minus deductions, of course).

So, based on my understanding of the proposal, if you have a SMSF in pension phase, and the pension earnings are equal to $100,000, then you pay no tax on those earnings.

Now, let's say your business has $100,000 of net earnings. BAM! 30% tax! I can see why you would want to keep the money in the company.

From: Super Guide

The super changes impose a new tax of 15% on pension earnings above $100,000 a year, per member.

Note: Pension earnings are not the same as pension payments to the fund member, which remain tax-free at all levels.

I am not talking only from the earnings point of view. Perhaps I did not communicate properly. I am talking about the decisions I had to make through my entire working life.
If I am self employed I have a choice on where I allocate my earnings, do I contribute maximum contribution to Super or pay 30% tax and invest elsewhere?
I do not believe we can look at just one part of our Super, as it meant to be for our retirement and whether we can make better investments, right? Perhaps if you are an employee you look differently since the 9% contribution is paid by your employer, not you, but in business I have a choice where I contribute and what amount. So I am looking at overall effect of why would I now contribute to Super $25K, or my children for that matter, if they will be taxed 15% contributions, 15% earnings, and after $100K exemptions (this will be probably changed many times over - I have no crystal ball into the future) another 15% over the limit over the long time.
All I am pointing out is that perhaps in the past it was a good idea to invest into SMSF for a long term, having the choice, as the tax incentive was there, whereas now it may not so be attractive from investment point of view, that's all....

 

[MIW]

Let's say you are self employed, earning $80,000 a year. You decide to put in $25,000 to superannuation.

The Superannuation contribution is taxed at 15%, or $3750, in the fund.

You get a tax deduction of $25,000 for the contribution, saving you $8500 in personal tax.

So you are ahead by $4750 for the year.

Where's the discouragement? Where's the negative multiplier?

That's just one scenario which can be taken further...
What if your fund returns 0% growth or negative growth in that year? Well you have just lost the $25,000, which is unlikely but possible, right?
Or if you paid company tax you would pay 30% tax but have access to earnings and decisions where to invest rather than be told that perhaps you can see that money after, 55 or no 60, or maybe we will be living linger so now 68, and as suggested above 70 years, and more likely in the future, I don't know 100 years old - and taxed at what threshold and tax in the future?
I agree the age can be changed as we live longer, but that's why there should be some incentive for SMSF as that's the risk we take for our entire life! YOU DO NOT HAVE ACCESS TO THIS MONEY FOR A LONG TERM!!!!!!!

 

[Aaron_C]

MIW - I am self employed and I see superannuation as a big Government trap. I would never put money in there unless I was forced into it - so I suggest you do the same

 

[MIW]

No, it isn't peoples' money. It's the Government's way of swapping tax revenue to make people less dependant on pensions in retirement. In effect, the Govt. has said 'We will take less tax out of your earnings, but we are going to force you to save that money for retirement, so you aren't reliant on the Age Pension'.

Which is why the age at which super can be accessed should immediately be raised to 70 and having the option of taking a lump sum abolished, also immediately. Contributions into super need to go back to 100K per year as it originally stood and the Govt should be encouraging people to put as much into super as they can, instead of taking away incentives. But that's what happens when you put an orangutan in charge.

People need to let go of the 'retire at 65' mentality. That worked 50 years ago, when people died a few years after retirement. Nowadays, people live a few decades after retirement, so they should work longer.

And now you have communicated to me that it is just another form of tax but not an investment vehicle at all, right?
If it's not people's money why would I use my knowledge, creativity, risk, time, and so on to invest into this scheme and then be further restricted and changed over time to suit the government needs, whether through age or tax or whatever??????
I have total control over my SMSF investments since 1995, so I do not understand how you can encourage me to further invest into something that I will not have any control over - whether it be age, taxes, investment decisions as you suggest or even the amounts I should be allocating for that matter. Who is to say that I cannot manage better than all those fund managers (certainly my fees are lower) .
If I can manage to be creative, self-reliant and independent who is to tell me when I am to retire? Why do I need the government to tell me if I am self-funded person, when to retire - at age 70 as you suggest? Why cannot I be 50 and retire if I am self-reliant human being?
You can probably tell that I feel passionately about that, since I have faith in people that some of us are still capable of making our own decisions and taking responsibility of our life and our investment choices.
I think this world is becoming just so constricted with all those rules trying to tell us what's best for us.... If I am self-reliant why can't I make my own decision anymore?

 

[MIW]

MIW - I am self employed and I see superannuation as a big Government trap. I would never put money in there unless I was forced into it - so I suggest you do the same

Aaron,
I wish I listened to my husband who told me this since 1995, he always said it was another form of tax. How right he was. We live and learn....
I think the moment I can draw out tax free I would but I have many years to go. Hubby on the other hand has 7 years so let's live and see...
I have no regrets, since having total investment control and long time, I took perhaps bigger risks and achieved higher rewards.
Anyway, the changes are required to cook the books but time will tell what happens. At least I know how to steer the kids future!
You see people don't understand that we make decisions everyday, so now I can help and advise the kids to go the negative gearing way towards property rather than to put any contributions towards SMSF....
We have that choice whereas many people, lacking Super control, don't. I really dislike (I try to avoid the word hate) how some people try to make our decisions for us thinking we cannot take responsibilities of our life on our own.....
Aaron, who is to tell us when we wish to retire if we can afford to, right?

 

[MIW]

MIW, if you don't like the idea of paying tax on your retirement earnings, don't use any of the facilities that are paid for and maintained by the taxpayer in your retirement. The cost of maintaining said facilities does not magically stop when you retire.

I do pay taxes and I don't mind paying taxes if they are manged properly so let's stick to the subject.....
However, here are few of my favorite quotes - I hope most will enjoy!:
Kerry Packer
“I pay the tax I am required to pay, not a penny more, not a penny less. If anybody in this country doesn’t minimize their tax, they want their heads read because, as a Government, I can tell you they’re not spending it that well that we should be donating extra.”
Harry E Fosdick
"Don't simply retire; have something to retire to.”
Mark H McCormack
“The mental game of business is understanding this Paradox: the better you think you are doing, the greater should be your cause for concern: the more self-satisfied you are with your accomplishments, your past achievements, your ‘right moves’, the less you should be.”
Mark H McCormack and Abraham Lincoln
“I do the very best I know how – the very best I can; and mean to keep doing so until the end.”
John David Wright
“Business is like riding a bicycle, either you keep moving or you fall down."
Theodore Roosevelt
“I care not what others think of what I do, but I care very much about what I think of what I do: That is character!”
Peter Costello
"If you want to save, put money into superannuation, you will never find a better savings vehicle."
Ken Griffey Jr.
“You lose, you smile, and you come back the next day. You win, you smile, you come back the next day.”
John Wooden
“Things turn out the best for the people who make the best of the way things turn out.”

 

[Ed Barton]

As I understand 15% on contributions is only on the amount above the concessional allowance. So contributions up to $25k don't get taxed. If I had earned that money I would have paid income tax on it. So even with contributions over the limit I'm ahead. Really a negative tax.

15% on earnings is not on the amount put in. It's only on the profits made.

And of course 15% going out is proposed for earnings above $100k.

That hardly amounts to 45% of the amount put in.

No. The fund pays 15% on contributions received up to the concessional cap, whether that be by employer, salary sacrifice or tax deductible eligible contributions. Any contributions exceeding the concessional cap have to come from a persons after tax income - the non concessional cap (IIRC currently 150k pa). The fund doesn't pay tax on non concessional contributions.

 

[austini]

Somehow I think it is more the constant changes to Super and broken promises by politicians that is the cause of much angst for some. Otherwise we would just accept Super as is regardless of the rules and focus on saving and investing well in the most tax advantaged manner.

Prior to Costella making Super too generous (in my view albeit I have loved it while it lasted) we just accepted Super as it was at the time. The previous Reasonable Benefit Limit prevented the accumulation of too much in Super. One just took advantage of what was on offer taking into account the rules. However once the goodies have been handed out (ala Costello's generous changes) it is very difficult for any Government to take even part of these away. Same with the baby bonus and all sorts of handouts. I'm not suggesting one bit that something as administrively complex as the RBL be re-introduced but whaever it is you just work with it.

Therefore if Costella had never implemented the changes, as investors we would perhaps be putting what we could into Super (within the limits) and then taking advantage of non-super strategies such as the use of Discretionary Trusts, negative gearing, depreciation, franking credits, individual tax free thresholds, income splitting ......

It is also worth remembering that Super can be useful for asset protection. Some do that using trusts as well despite the fact that at times this may produce less financial return than investing in one's own name.

So in summary politicians just need to stop making promises they can't keep and keep well considered changes (after industry consultation) to Super very infrequent. Hence none of the very frequent, on the fly changes for quick budget fixes we have seen in recent years.

 

[geoffw]

Once you could withdraw your super whenever you finished with an employer. Of course it wouldn't be a good thing to do that. Which is why I did it.

Well, I was in love and it's the only way I could afford to go back to Mexico to see that lovely young lady again.

We recently celebrated our 25th wedding anniversary. She's still lovely, just not quite so young any more.

Without being able to spend that super I may not have married.

 

[kathryn d]

Anyway, either way I do not trust any government, the longer I live and the older I get.

This sounds similar to what we heard from the Great Depression era, doesn't it.

For what it is worth..I don't think you are alone.