Julie Steed from Insignia Financial said in the latest ASF Audits podcast that she has had conversations with clients about the assets they currently hold in their fund, and considering what they could do if they wanted to “opt out” of the Div 296 tax impacts.
“We’ve got clients who have lots of liquid assets and lots of liquidity, and the main themes I’m seeing is that they believe it will be OK and they’ll just pay the tax,” she said.
“But for other clients who are thinking they don’t want to participate, they are considering where they may get a better outcome external to superannuation, and are starting to look at the nature of their assets and what options for sale are available.”
Steed said it is this cohort that may look further afield regarding their investments and consider overseas property purchases.
“I get asked often by clients if they can go and buy a property in Bali and I tell them their auditor is going to hate them, and it’s not going to be easy but if they want to take advantage of that investment opportunity do it, but do it outside of super,” she said.
“But let’s not also forget about people who won’t have the opportunity to take their money out of super because they haven’t met a condition of release and there’s plenty of those people out there as well, so they won’t have those choices. They may change up their investment mix to make sure that they’ve got liquidity to pay the taxes if they need, but sometimes it’s the illiquid assets that are the ones that are generating the growth in the total super balance.”
Steed continued that with the introduction of the Div 296 tax, there may also be less borrowing in superannuation because people won’t be looking to have very large balances, which is often seen as a result of leveraging, particularly against property.
Although the new tax is purported to affect only around 80,000 people according to the government, Steed said she has spoken to hundreds of advisers who manage thousands of clients who will be impacted by the new tax, especially the taxing of unrealised gains.
“Fundamentally, these clients don’t object to paying a higher level of tax, it’s how it’s being proposed that is the cause for concern for everyone and I think that’s where it’s a problem,” she said.
“When I look at the Objective of Super one of the things that I always get bitterly disappointed at is, historically, governments have a practice of just ignoring the value of self-funded retirement when they talk about how much the superannuation tax concessions cost, but I hope that that this tax will force a change and require governments to measure the government support provided to super both in terms of the tax concessions and the social security savings that are made from people having self-funded retirements.”
In the meantime, Steed said advisers must be educated about how the tax will work.
“I’m finding advisers need to upskill because their clients are asking them questions [about what to do]. They’re asking how the tax is going to be calculated and about negative returns,” she said.
“Fortunately, at the moment, most of the advisers that I deal with have got clients who are in positive territory and have been for the last few years.”
Good luck to the people that can move assets out of super and out of the reach of silly tax rules. This will likely materially impact any future government revenue projections.
Others, as the article point out are not so lucky, many have assets like farms or property that make up the bulk of the value of their SMSF that are not easily able to be liquidated or it is completely impractical to do so because it generates income for the SMSF etc. Others might have assets they simply do not want to sell.
What happens if the people with SMSF’s who get caught up with this who don’t have sufficient liquidity to pay some made up tax?
Either way the treasury revenue predictions will be like most economic forecasts, the difference this time is the unintended consequences of the implementing such a dumb policy that breaks an important social contract. This impact will be lasting and moving wealth/assets further out of reach of governments will become the first choice for people who might otherwise be ok with paying tax if it was based on a fair and commonsense approach.