Tread cautiously before making decisions about $3 million tax proposal, adviser warns
The proposed $3 million super tax is highlighting the problems that already existed in the SMSF industry and how it deals with illiquid and non-divisible assets, says a leading adviser.
Phil La Greca, executive manager, SMSF technical and strategic service for SuperConcepts said property held in an SMSF is a prime example of this and urges caution for those looking to offload these types of assets until the legislation and calculations are finalised.
“Property is not like shares that you can cash in,” he said.
“With shares you don’t need to sell the whole lot, but with a property you do. You can’t sell part of a property.
“The $3 million super tax proposal has just highlighted how people have treated property within an SMSF.”
Mr La Greca said the issue of holding property is less of a problem in the APRA fund space where there is more money coming in through contributions and a spread of people in different phases of their super journey.
“In the SMSF space, around 32 per cent of funds are in the pension phase and in the APRA space that is completely different because of the wider spread of demographics,” he said.
Mr La Greca said the concern over SMSFs having to rid themselves of property assets is a result of poor planning and the lack of recognition that the asset has to leave the fund at some point.
“All the $3 million super tax proposal is doing is putting into sharper focus the problem that was there anyway,” he claimed.
“In 2017, the government bought in the TBC at $1.6 million and if you had more than that in pension phase, you had to roll it back into accumulation phase. It is effectively the same decision being talked about now.”
He said he believes the government is not expecting to actually collect much from the proposal but is rather working towards getting surplus assets out of the system.
“It all really comes back to the objective of super,” he said.
“In 2002–03 the total tax expenditure costs of super was $11 billion, now it’s $50 billion so it is costing five times as much now.
“The government has to say ‘where is the bang for my buck’ and so is winding concessions back.
“The question is about whether super is purely about retirement. Is it about having as much superannuation as you like or is the government trying to put a minimum floor on it?
“All these things have to be thought about in context.”
He said rather than trying to determine if assets must be sold or liquidated people should take a more cautious approach.
“Tread cautiously before doing anything now. A lot of people who are looking at the effect of the $3 million super tax are not young and if they pull money out, the contribution rules say they can’t put it back,” he said.
“Be alert, not alarmed yet. Of course, the SMSF sector doesn’t like the fact the proposal is there, but I take the view that we can’t just look at this as the SMSF sector but as the super sector as a whole.”
