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Understanding withdrawals, contributions in TSB vital for new super tax: adviser
Understanding what is, and is not, included in the calculation of the proposed $3 million super tax legislation is important for formulating an effective tax-minimising strategy, says a specialist adviser.
Natalie Scott, superannuation adviser for the Knowledge Shop, said there are a variety of planning opportunities in regard to the proposed tax that can be considered to get the best outcome for clients.
“There are some clients that might be making use of their tax-free threshold, or their spouse's balance might be a bit lower,” she said.
“Effectively what will happen is the 30 June 2026 balance of a member will be compared to the 30 June 2025 balance to work out what the earnings are. For an SMSF those balances will include any capital gains and income during the year and it will also include the market value of the assets.”
Scott said as the tax will be based on total superannuation balances, it’s important to understand what this entails.
“The TSB is made up of unrealized gains, so that means that market valuations are going to become very important as are the earnings for the current year, which will then be adjusted for anything that is considered a withdrawal or a contribution,” Scott said.
“Obviously you would add back any withdrawals, and take away any contributions net of tax, and then compare that amount to the previous financial year.”
Regarding what is considered a withdrawal, Scott said the list includes any pension payments, transfers from a spouse, spouse contribution splitting arrangements, as well as super benefits transferred under family payments split.
“It also includes amounts withheld from excess on tax rollover amounts, which is pretty unusual as we don't see untaxed rollovers a lot. Usually, when someone's rolling out of one of those defined benefit funds or a Commonwealth fund there might be an untaxed amount,” she said.
“Included as well are valid requested release authorities such as those completed in relation to excess non-concessional contributions.”
The contributions that will be included are non-concessional and concessional contributions, spouse splitting, depending on who is receiving the benefit, and total super balance valuation on the death benefit interest.
“This means that when someone passes away, a member who was a spouse has the ability to commence a death benefit income stream and in the year that they commence that stream it will be removed from the earnings calculation, but moving forward after that, it will be included,” Scott said.
“The same goes for insurance proceeds payouts on death or Total Permanent Disability payments, any foreign superannuation transfers and an increase in the TSB due to a compensation payment.”
David
I think the best option is to give to the kids with a worm hand - maybe NCC so that the money remains in SMSF0- So if you are going to withdraw the excess over $3 mill and say move it to a family trust,
1. you need to withdraw before june 30, 2025. If you withdraw on July 1 it just gets added back to the June 2026 balance. It sounds like you pay capital gain twice. Once on the July 1 disposal and a second time div 296 on the add back. Sounds crazy but the whole thing is crazy.
2. You can do an in-specie withdrawal and just do a withdrawal transfer to the family trust.
3. You can select the assets to withdraw or sell to minimise the net realised capital gain prior to June 2025.
4. You can also keep the $3 mill expected high income earning investments in the SMSF with zero pension phase tax, and move expected capital gain investments to the family trust with the bigger CGT discount.
5. Funds which did a cost base reset and paid tax on the implementation of TBC with a very low taxable percentage are going to benefit by paying a small amount of capital gain back then.
I think tis tax change is ideologically, morally and ethically wrong. If they had just put the extra tax on the income above $3mill as first announced I was inclined to just pay it. Now I am determined to make sure the government does not see an additional cent in tax. If necessary I will withdraw tax free from the smsf and gift to family.0- David, in response to #1 above, I understand that withdrawals will only come into play if the balance at the test date (30th June 2026) is $3m or over (even by just one dollar). Someone else may like to answer. Also we need to see what the final legislation looks like if it is passed.
Unfortunately, stamp duty may still apply on transfers to a family trust (depending on which state the property is held?). CGT will certainly be payable. These are my understandings anyhow.
I sense your anger, and like you, we are outraged! :)
0
- My thought is that the contribution is gross not net when calculating the movement for the year. Regards Mark0
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