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Well off pensioners duck a bullet

Staff reporter |  28 October 2013  |  Super

BulletSMSF investors with sizable assets have reason to be relieved that the Coalition won the last election. Last April, the Labor government proposed a $100,000 cap on the tax exemption that applies to superannuation in the pension phase. It was said to only apply to people with more than $2 million, which would be reason for most people to not worry. But as Richard Livingston points out in The Age the problems come when people set up an SMSF to borrow and buy property -- then get one-off capital gains that push them over the threshold.

"There are several flaws in the proposal and one of the biggest is a lack of "averaging". If your super account earns $99,000 a year, you're safe from the tax. But if you earn $50,000 a year for a decade and then make a $200,000 capital gain, you're not (despite earning less overall).

"The other food for thought for SMSF investors is that the proposal raises many complexities and practical difficulties in the context of multi-member retail and industry super funds – for instance, how do you allocate capital gains between members? Given this issue, and the fact that institutions have a lot more lobbying power than SMSF members, there's a chance the pension tax might end up "SMSF only" – either in fact, or in substance."

Livingston says superannuants in an industry or retail fund are not immune; they are subject to the tax laws. But SMSF investors are more vulnerable:


"They're an easier target, they have less clout and are more likely to invest in the sort of lumpy assets (property and unlisted managed funds) that will be unfairly penalised under the policy as it stands. A person with a $500,000 super account, aiming for a return of 8 per cent a year, shouldn't be hit by the pension tax. But if that return comes in the form of a lumpy capital gain at the end of a decade or more (for instance, selling an investment property) they could be up for a bill of thousands of dollars."

All this is, of course, only hypothetical. Labor lost the election. But it is worth keeping an eye on.





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