Super SUPER Questions

Hi Folks

Need your help to confirm my understanding how all this work

• The combined balance transfer cap for a couple is $3.6 million. If a member's transfer balance exceeds this cap, there is 15% excess transfer balance tax (ETBT) ONLY on the excess amount. So if balance transfer from accumulation phase to pension phase is $4mil. Then, there will 15% tax on $400K only NOT $4mil.

• Any strategies to avoid or minimize tax when balance transfer is more than $3.6 million cap. e.g. early commencement of pension or something else?

• CG from sale of investment property and shares acquired during the accumulation phase is 100% tax-free in the pension phase - irrespective of the CG amount. E.g $2milion of CG will be tax free in pension stage.

• Investment earnings generated within the pension account are completely tax free. So, if $3.6 million worth of assets are sold in pension phase and sales proceeds are used to buy high dividends stocks (4%), then entire $144k income during pension phase is tax tree?

• At what income level , does the tax on income from investments within super start?

 

It's currently $1.9m per person, so $3.8m per couple. It'll increase due to indexation, so by the time you get to 60, it'll be a lot higher.

You can maintain a accumulation account alongside a retirement account. So move the max of transfer balance cap to the retirement account when you reach the age, and keep the rest in the accumulation account. It'll continue to be taxed at 15% though.

Also remember you can generate income outside of super, which will be taxed at 0% up to the tax free threshold.

 

Thank you for your response. Can you please confirm that

• When i move from accumulation to retirement phase, i sell assets and 15% tax will be on additional $200k only NOT $4mil. Basically CG will be tax free for growth till $3.8 mil.

• Divided Income from share’s purchased from property sale will be tax free in pension phase - irrespective of the income amount.

 

There is no "combined balance transfer cap for a couple" - there are only two individual transfer caps. Not the same thing. As pointed out, currently that cap is $1.9m, but there are other factors as to whether you in particular, and the other half of the couple, have the full cap. Your personal cap details should be available in MyGov/ATO.

If you exceed your personal transfer balance cap, there is not only a penalty (normally), but you will be forced to remove the excess balance from the pension account and either put it back in an accumulation account, or withdraw it as cash. You don't get to pay some tax and keep it in a pension account. That's why it's called a "cap" - they mean it.

So there is no good reason to deliberately exceed this cap via a transfer that I can see - you're just gifting money to the ATO.

The earnings in any residual super parked in an accumulation account will continue to be taxed at the standard rates.

Read anything you can find on the ATO site super section and all the various other reputable publications around and you'll get to a more knowledgeable position quite quickly.

Good luck.

 

Is the tax on unrealised gains in super still a thing?

 

It is still part of the DIV 296 draft legislation
https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf

 

There is no such thing as a cap for a couple. It is always individual. You said... transfer balance is more than $3.6 million cap. e.g. early commencement of pension or something else? When each mmeber starts a pension this is when the cap is measured. eg $1.9m EACH.

A member can have a balance (todays asset values) that exceeds the Transfer Balance Cap (assets when pension starts) sometimes eg $100K may need to remain in accumulation and be taxed. . This just means it cannot be a pension account balance. Best strategy tio EXCEEED the $1.9m cap is rapid growth in pension assets. If a members has a $1.9m pension account and the assets double in value thats legitimately OK. It is NOT limited to $1.9m. Actuarial certificate strategies like segregated pension assets are a matter to consider IF eleigible.

Cap gains during pensions are not always tax free. eg I start a pension today and realise a gain. The gain is pro-rata taxed and pro-rata exempt in first year whether it occurs aftre or before pension starts !! So you can have a huge gain triggered on 1 July and strat a pension in September and its part tax free. .Then if the member has TSB > $1.9 a actuarial cert may leave some taxed. The income from ASSETS that support a pension are tax free based on $1.9m MAX each member for a full year.

Otherwise unless exempt all income in a fund is taxed at 15% or 2/3rd of discounted gains. (10%)

There are numerous tax measures which seek to limit super balances eg caps, transfer balance cap and the proposed Div 296 tax. There are also excess contributions and excess earbning rules and more. However all are framed to ALLOW excessive benefits. Excessive benefits are discouraged through tax. This doesnt mean that the tax means it is bad v the choice to pull the money from super. Most people with very high balances will be better off paying to leave their investmnets in super.

This is the underlining policy issue : This adjustment will apply prospectively and does not impose a limit on the size of superannuation account balances. Individuals with TSBs over $3 million will receive less generous tax concessions on earnings.

 

Thank you for your response.

Lets say - I invest $500K today and it become $4mil. Now $3.8mil (combined) balance moves to pension account and remaining 200k stays in accumulation account. When in pension phase - I sell $3.8mil worth of SMSF properties and then buy incoming producing share. Please confirm, if my understanding is correct

1. No tax on growth from $500k > $3.8mil when selling in pension phase
2. No tax on $152k annual income (4% dividend on $3.8mil shares)
3. Any income and/or CG on $200k in the accumulation account will continue to be taxed at 10% (> 1 yr)
4. If I dont sell the property $3.8mil worth of during now becomes $5mil. Then all growth from $500k to $5mil is tax free.

 

Income is 15% in accumulation, 10% for >12 month hold on CG (as you pointed out).

 

By the time your $500k invested today turns to $4m, the Tranafer Balance Cap will be much higher than $3.8m for couples combined.

 

Also look at asset segregation. I don’t think they can be segregated if someone has both pension and accumulation which means a small proportional part of the property sale would be taxed

 

Asset segregation is complex issue that can only be done with a SMSF. It does add some degeree of complexity and costs to the annual work and doesnt overall change a thing in total between say two members except which member has that share of income allocated. Some assets cant be segregated and others can and it is complex to explain. An asset can certainly be segregated between both pension and accumulation accounts and even between two members or more. The actuarial certificate process covers this.

The NSW duty concessions for real businessss property transfers to a smsf is often reason to segregate. NSW duty laws require ONLY (say) Mum and Dad as the former property owners retain a interest in the fund and NO other members. So segregation to Mum and dad and to exclude a adult child for example may be a essential requirement to avoid a duty issue. Mum can then have a pension backed by her share of that asset and Dad may be too young. Later when he moves to pension the pension "policy" is updated to switch the property share within the accumulation that moves to pension. Cash assets can be problematic for segregation.