Super funds set to lose $2 billion investment earnings from new tax

A BIGGER government tax slug is set to wipe out an extra $2 billion of investment earnings each year from super funds — though women could be the unexpected beneficiaries.

SUPERANNUATION funds are set to be stripped of an extra $2 billion a year in investment earnings as the federal government takes a bigger tax bite out of retirement savings.

However, in an unexpected spin-off, women are set to benefit from the tax change.

Under new federal budget rules an additional $225 billion of superannuation assets are to be taxed, after losing their tax-free status last year.

SMSF TAXES: NEW RULES CREATE BONANZA FOR GOVERNMENT

HOW MUCH MONEY DO I NEED TO RETIRE?

SUPER-SIZED SUPER FUNDS HEADED OUR WAY SOON

According to the Australian Institute of Superannuation Trustees and Industry Super, about 5 per cent of managed fund members will potentially be impacted by the new tax.

In the self-managed super fund sector, that rate rises to about 25 per cent.

DB Lawyers superannuation counsel Bryce Figot.

Self-managed funds have higher average balances, compared with managed fund members and the new tax applies to individual funds with more than $1.6 million.

According to a report by SMSF administrator Class, $200 billion held in SMSFs has lost its tax free status.

AIST and Industry Super estimated about $25 billion from managed funds would also no longer be tax free.

Investment earnings from the combined $225 billion are estimated at $13.5 billion which will now be taxed at 15 per cent, stripping out $2 billion from these super accounts.

The new rules which came in to force on July 1 last year put a cap of $1.6 million on tax-free super accounts.

Investment earnings on any amount above $1.6 million are now taxed at 15 per cent. Previously they were tax-free.

Despite the extra slug to retirement savings, there has been an unexpected benefit.

According to DB Lawyers superannuation counsel Bryce Figot, there has been a surge in couples rebalancing their pension funds to have equal amounts.

An extra $225 billion of superannuation assets are to be taxed.

“One of the most popular strategies that has come out of the new rule is withdrawals and recontributions between couples,” Mr Figot said.

“Not that that was the government’s intention but it has especially helped women’s super and that’s very positive because women have far less in super than men,” he said.

“But there is now a real incentive to take money out of one account and recontribute it to a spouse account — so both have a tax free pension cap of $1.6 million.”

Mr Figot also said that the new tax rule had also triggered more contribution splitting between couples. The highest earner in a couple can transfer part or all their superannuation contributions each year to a spouse account instead of their own account, he said.

These deposits in to a spouse’s account do not count towards the annual $25,000 contribution cap, which allows the spouse to receive almost double contributions without being penalised.

Despite the extra tax, Mr Figot said the benefits outweighed any other investing or savings alternative.

“Superannuation is still the vehicle that gets the best results when it comes to having the least tax payable. Compared with anything else, personal tax rates, family trusts, a company structure, superannuation funds still result in the lowest tax.”

[e-mail]