Don’t change saving behaviour before rules are in place, warns specialist adviser
Younger SMSF members should not “squander” any chances of boosting their superannuation balances before the $3 million super tax legislation is passed, says an expert legal adviser.
Clinton Jackson, partner at Cooper Grace Ward, said SMSF members should not be changing their behaviour or making significant decisions about anything to do with super based on the proposed tax as there are still too many unknowns.
“We really should pause and see what happens, monitor it, but be wary of doing anything too life-changing,” he said.
“I think we need to balance it out with the limitations that are currently in place in super ... Obviously, we have a very limited ability to add money into super through the current restricted contribution regime, so we shouldn't squander any chances that we have for younger members that have the ability to get a super balance up around that $3 million mark.”
Jackson said many people have been concerned that the proposed Division 296 tax that is slated to apply to earnings over $3 million will force people to take money out of super and that once a total super balance does reach that limit, there would be no ability to accumulate more.
“That is not the way it works. It doesn't impose a hard cap on how much money you can have in super,” he said.
However, he said advisers and trustees should start thinking about what they may be able to do to ensure their clients’ tax liability is minimised.
“They should be doing some work around what kinds of contributions they are going to make as well as what types they are going to take advantage of,” he said.
“For example, is it worthwhile thinking about downsizer contributions for some people? I think there are definitely some opportunities for SMSFs to work with their accountants and financial planners to do some modelling around that to actually work out what is best for them in their individual circumstances.”
He added consideration should also be given to particular assets that may be held in super, and whether investments are likely to have a substantial gain or loss in the future.
“SMSF trustees and their advisers need to think about where the best places are to invest in those assets. Is it still super or should they be looking at moving it out of super?” he said.
“We don't currently have any rules about many aspects of the proposal, and there's a whole subset of members out there that will be impacted by this tax.”
