Aaron Dunn, CEO of Smarter SMSF, said in a recent webinar that the stage three tax cuts will see the rate for lower-income earners drop from 19 per cent to 16 per cent, reducing the incentive to move assets into super which has a tax rate of 15 per cent.
Tim Miller, technical and education manager for Smarter SMSF, said the proposed changes to the tax cuts for the lower tax bracket could influence future decisions about where money should be retained and whether members in the retirement phase want to take money out of super from an income point of view.
“A lot of people will be thinking salary sacrifice strategy and things like the carry-forward concession if they are in the mid-tier income bracket,” Mr Miller said.
“A lot of those people will have unused, concessional caps and will be thinking about whether there will be a greater capacity to contemplate salary sacrifice arrangements moving forward because I believe there will be some movement in that area with regards to contribution strategies.”
Mr Dunn said for lower income earners, the change from 19 per cent to 16 per cent tax rate, moves them closer to the 15 per cent rate that applies to superannuation for those in the accumulation phase.
“That has got us thinking about what some of the issues will be for people contemplating, with just a one per cent difference in tax rate and the Medicare level kicking in, whether it’s more beneficial to keep assets inside super, or out of super,” Mr Dunn said.
“We have seen in this financial year minimum pension factors have gone back to where they were and people are pushing more out of their super fund in a lot of instances.”
He said the question then changes to whether are they better managing that risk at 16 per cent outside of super rather than trying to manage it at 15 per cent inside of super.
Mr Miller said there was a significant change from 1 July 2020 concerning contributing after age 67 into super, and many clients saw that as an opportunity to put more money into their fund.
“But if the tax rate drops down to 16 per cent, will that mean there will be less desirability to put money into super if it does have ramifications on things like estate planning from a taxation point of view? Is it worth putting that money in for that potential one per cent variable?”
Mr Dunn said the potential of the lower tax rate for low-income earners adds another layer of complexity for advisers to deal with regarding the best tax implications for their clients.
“With all these impacts we have to continually overlay as part of the ongoing requirements and this provides an opportunity for advisers to be sitting with their clients analysing, understanding and working out what they’re going to do next,” he said.
“This is another layer again on top of the planning that we need to do with holding assets in or outside of super, subject to the Division 296 rules.”
[i]My situation: [/i]
I pay [i]total[/i] tax on personal “taxable” income of 30% overall – due to flattening of thresholds.
Under the proposal, for 2022, total tax payable on “taxable” super income would have been 47% overall – allowing for the flattening of the 2 rates of tax (adding together 15% on “taxable” income and tax under this Bill).
[i]My solution:[/i]
Will I be moving assets out of super? You bet!
And I will not be tied by endless red tape once I complete this task, with complete freedom over assets held for me currently in my smsf.
[i]My take:[/i]
I see this Bill as confiscation of wealth.
Any tax on unrealised tax is egregious.
The definition of the Div 296 as a tax on “earnings” is disingenuous – grossly deceptive to Australians at large.
I need to protect 50 years of savings and sacrifice and hard work from this current government whose go-to weapon is class warfare. Without this “insignificant” group of people that they refer to us as, the economy would fall.
There are better, fairer ways of extracting income for government, but for reasons known only to themselves, they have chosen to ignore free advise from agencies that know far better than me.