Wealthy people are already preparing for the new super tax. Here’s how

High-net-worth individuals are already funnelling their super into trusts and housing for their children, and financial advisers say there will likely be a bigger exodus once the federal government’s new tax on superannuation earnings comes into play.

While the tax change has not yet passed parliament, and the government will need to make concessions to secure support from the Greens, people with super balances larger than $3 million have already begun reassessing their investment strategies.

The tax change will only affect about one in 200 Australians, but the impact could be bigger over time.Credit: iStock

The change, set to start in July, will double the tax rate for superannuation earnings from 15 per cent to 30 per cent for the portion above $3 million in a super balance, including unrealised capital gains on amounts above this threshold. The move is expected to raise $2.7 billion in its first year of operation.

Financial and tax advisers who deal with high-net-worth clients, including those with self-managed super funds, said many had been rattled by the incoming change.

Pitcher Partners superannuation director Brad Twentyman said while the final form of the tax remained uncertain, the most likely result was wealth being redirected from super funds to other investment structures.

“We’re flying a bit blind, but it’s certainly causing a lot of concern amongst my clients,” he said, noting some were pulling forward changes to their investment strategy as they faced personal circumstances such as preparing for family succession.

“Those changes are probably warranted with or without the new tax, but if the new tax comes in, it’s going to be more favourable to these clients to restructure early.”

Twentyman said nearly all of his clients with super balances over $3 million would consider changes to their retirement strategies, especially those who had assets in their super that could derive a large portion of their returns from changes in their unrealised value.

“For really high-net-worth individuals, if they’re going to restructure their super fund, they’re probably looking at either shifting that wealth into a company or trust,” he said. “There’ll be certain investments that will be very unattractive to hold in superannuation if this new tax gets in such as direct property and unlisted investments.”

Perpetual Limited partner Mark Vignaroli said he was already having high-level conversations on possible strategies with many clients over the potential changes.

Anthony Albanese and Jim Chalmers have faced growing opposition for several elements of the proposed superannuation tax changes.Credit: Alex Ellinghausen

“We’ve got clients here that might have $5 million or $6 million sitting in their super account, and potentially if we were to remove that money out of super and put it into a family trust that’s split between a couple of tax advantage beneficiaries, they may not pay tax on that money,” Vignaroli said.

Vignaroli anticipated a rush on clients changing their retirement settings, unless the start date of the policy was pushed back. He said some clients who were helping their kids into the property market, especially those facing an inheritance-style tax on their super because their children are not dependents, were taking money directly out of their super for their children’s home deposit.

HLB Mann Judd tax consulting partner Peter Bembrick said most of the movement would occur once the tax passed, but for those with super balances substantially over $3 million, it was worth thinking about possible strategies.

“It’s not one size fits all, but one option is certainly to take a chunk of money out of super,” he said.

Bembrick noted that this could only easily be done by those who had retired – and therefore able to withdraw super – but would not work for those with certain assets. “You can’t just sell off part of a farm or building,” he said.

Evalesco Financial Services chief executive Jeff Thurecht said transaction costs may, in some instances, make reallocating funds more costly than it is worth.

“It may not be as straightforward, and there may not be a significant difference in the underlying tax rate from moving funds to a different investment vehicle,” he said.

AMP deputy chief economist Diana Mousina said the tax change could mean an early wave of inheritance as people looked to move money out of their super funds, but that there were limits on how much could be withdrawn.

She also said there could be less purchasing of property through self-managed super funds and a higher demand for family trusts and insurance bonds, which can be subject to favourable tax treatments.

“I don’t think it’s big enough right now to see significant fluctuations in asset prices,” she said, noting the lack of indexation of the $3 million threshold meant there could be longer-term implications. “If it affects more people over time, fewer people will invest in things like Australian equities, which could affect the share market, and people might start taking money outside of Australia.”

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