Should I stay or should I go? The implications of taking money out of super

“These are the people who have already moved beyond non-concessional contributions, their balances are too big, so they're not thinking of non-concessional contributions,” she said.

“They're genuinely thinking of these types [of strategies] - the concessional CGT, exempt or downsizer contributions.

“Now, the argument I would make is there's no way these people should stop making those contributions for a couple of reasons but mainly because we don't even have draft legislation yet.

“Secondly, about 70 per cent of our clients who would be affected by this are over 65 so they can put their contribution in now and if they hate the idea in a couple of years’ time, take it back out again.

“And thirdly, each of those contributions often has another driver, like a tax deduction.

“You wouldn't want to miss out on the chance that something might come in where you might wish you could take the money out again later. Particularly if you're someone who can.

“These clients are also the ones that can't do re-contribution strategies anymore, because their balances are already too high.”

Ms Heffron said downsizer contributions and CGT-exempt contributions come in as tax-free money and feel much like a non-concessional contribution, even if all the client does is make them so they can take out some of their taxable money in super.

“Still, they might as well make the contribution,” she said.

“There'll be very few clients, I think, who are already in the territory where they can take money out again, who say ‘I'm going to stop contributing’. I think they'll just keep going until we actually have some real live legislation.”

However, she said the most alarming ‘strategy’ clients are considering is taking some or a large portion of their money out of superannuation.

“[They are asking] ‘Is it actually better to be taxed in my own name, or take money out of super, put it into a family trust, have that trust distribute income and gains to either people or a company?’,” she said

“And instead of leaving all the money in super we split it across the two structures.

“It's all very well to say my super fund is going to return, let's say eight per cent, but it really matters how much of that is income and how much of it's growth.

“And you have to consider how are you going to get the money out in the first place? Have they conveniently got a lot of cash, or are they going to have to sell something to get it out because if you have to sell something, you're realising a capital gain.”

One of the biggest grievances of the proposed tax, she said, is this issue of unrealised gains.

“There are two reasons we hate it. One, it might evaporate, but the bigger reason, actually I think is it's bringing forward the tax payment. It's making us pay tax now for something we won't realise for a long time into the future,” she said.

“That's the reason it hurts people. It's creating a situation where to get money out of super, we’ve got to realise a large gain and is doing exactly the thing we don't want on a large scale because all of a sudden we're having to sell things and pay capital gains tax to get the money out of super.”

She added that one of the other things to consider is what the tax rates out of super may be, as by the time the proposed legislation is enacted, the stage three tax cuts will have also arrived.

“At that point, an individual is going to pay no more than 30 per cent, plus Medicare, up to $200,000 and we can pretty much bank on a tax rate for most of this modelling of about 30 per cent,” she said.

“It doesn't matter whether it's going to a company or to an individual, it's going to be 30 per cent or it's going to be 45 per cent - it's going to be the top marginal rate because you made a large capital gain.

“There will be discounting, but we certainly don't want to distribute that very large capital gain to a corporate beneficiary or a family trust. It's probably going to come out to an individual.

“The key thing to highlight is how much it matters where the return comes from. Taking it out of super looks great when a large part of the return is coming from gain and great during the accumulation phase.

“And then there's a reversal and the key will be how bad is the reversal? How much does it take us right back to the spot where we'd rather not have taken it out of super in the first place? Or does it just eat away at some of the benefit we've had of being out of super?

“What I would take away from this is, if most of the income, most of the return is coming from income, super is probably better even with the new tax.

“Unfortunately, we don't get as much of a break out of super but we still get roughly similar tax treatment and that's because the rates are fairly similar.

“It's just that new taxes on this tax, is taxing a net amount, whereas outside super it will be taxing a gross amount."