Why do people oppose taxing super balances over $3m?

I’m perplexed by your opposition to taxing superannuation balances over $3 million. This affects a small, affluent minority who have benefited from substantial tax concessions for decades and will continue to do so on balances below $3 million. What is inequitable about requiring an extra tax on amounts above that threshold? Are you challenging the entire proposal or specific aspects? Given the public support for the super system, this seems a reasonable adjustment to ensure it aligns with its original intent.

The proposal has two serious flaws. First, it is not indexed, which means more and more people will eventually be caught by the extra tax as inflation rises. In addition, couples with a combined total of $3 million face a risk: the surviving partner could suddenly be over the limit when one partner dies.

Effectively capping tax-free super balances at $3 million is poor policy.Credit: Simon Letch

Next is the proposal to include unrealised capital gains in determining whether the balance exceeds $3 million. There are two fundamental issues with this approach.

One problem is the difficulty of accurately valuing assets such as farms, whose worth depends on numerous factors, including weather conditions, market demand, and regional economic trends. The other problem is that the proposal ignores the inherent volatility of markets.

Consider a practical example. Suppose a fund invests one million dollars in a volatile tech company. By June 30, the portfolio’s value may have risen by $3 million, contributing to a member’s $7.5 million superannuation balance.

This increase represents an unrealised capital gain of $2 million. Typically, no tax is paid by the fund until the asset is sold, but under the new proposal the individual would pay this new tax personally based on the excess over $3 million.

If the stock later drops by 50 per cent after June 30, no refund would be available for the extra personal tax already paid. Losses could be carried forward to offset future tax liabilities, but this provides little benefit for members who withdraw their funds.

Furthermore, taxing unrealised capital gains creates a slippery slope. Labor has already signalled its intention to target capital gains tax and negative gearing. In a future scenario, a government might tighten CGT rules by reducing or eliminating the 50 per cent discount.

This could prompt landlords to hold on to their properties to avoid triggering a taxable event upon sale. The government could then claim that a fortune is locked up in unrealised gains as landlords are reluctant to sell and extend the tax to rental properties.

We own our own home, valued at around $1.3 million, although we have an investment loan against the home equity of $400,000. I have not paid this out as my investment return has, to date, exceeded the interest payable on the interest-only loan. Does Centrelink deduct the value of the investment loan when calculating asset value to determine eligibility?

It depends on how the loan is secured. If the mortgage is over your residence, the loan will not be deducted from the asset value – but if the loan is secured over the investment itself, Centrelink will reduce the investment asset by the amount of that loan.

I’m 65 and retired, and my superannuation – currently valued at $755,000 – is in the accumulation phase. I’ve been making concessional contributions from my share dividends. I want to make one final concessional contribution this financial year before converting my super to the pension phase. Is it possible to make this contribution and then convert to the pension phase immediately, or do I need to wait until the next financial year?

You can make the concessional contribution at any time, as long as your total concessional contributions for the financial year do not exceed $30,000. Once your super fund has acknowledged your notice to claim a tax deduction for your contributions, you can commence the pension.

However, if you plan to make additional contributions after converting your fund to pension mode, you might consider maintaining a separate accumulation account for those contributions. This is a common practice.

My wife and I, aged 72 and 71, are retired and own a five-bedroom, double-storey house. We bought a single-level three-bedroom unit to downsize, using $300,000 each from our super (leaving mine at $1.2 million and hers at $400,000) plus a bank loan. The plan was to sell the big house later and put $300,000 each back into super. But with too many houses for sale in our area, selling’s been tough. So, we’re renting out the unit for now. Can we still add $300,000 each to our super as part of downsizing, even though the unit’s an investment and the house sale is delayed?

You don’t need to use the downsizer contribution. You can make non-concessional contributions of up to $360,000 each, using the bring-forward rules as you are under 75 and your superannuation balance was under $1.66 million on the previous June 30.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.