The Australian’s Money Cafe: Who gets caught in a new super ‘cap’?

A move by the Albanese government to impose a first time ‘cap’ on super now looks likely to cut in at a lower level than expected | LISTEN

Treasurer Jim Chalmers. Picture: NCA NewsWire / Gary Ramage

A move by the Albanese government to impose a first time ‘cap’ on super now looks likely to cut in at a lower level than many investors had expected. Super industry groups had conceded a cap of $5m would be appropriate. Industry lobbyists had clearly hoped the figure would attract Treasurer Jim Chalmers, who believes the lack of any limit to individual super savings at present is unsuitable.

But Chalmers has caught the industry – and investors – off guard by raising the prospect of a $3m cap – that’s a $3m limit on the total amount of money any one person can have in the super system.

Investors and financial advisers are surprised by the plans after the government had said there would be no major changes to super. Property investors in particular will need to pay attention fast because many could easily find their combined assets come in over the $3m limit with no easy way to solve the problem without selling.

As property expert Pete Wargent tells The Australian’s Money Cafe podcast this week: “Unfortunately you can’t sell a bedroom.”

As Wargent explains, Self Managed Super Fund investors with property holdings do not have the ‘liquidity’ to sell quickly or easily. In contrast, shares can be bought or sold quickly and for any amount – the minimum share parcel is $500.

Wargent also says that Australians who have deferred home improvements in exchange for saving in super will also be upset by a new cap in super knowing that the tax shelter for home ownership – which is exempt from capital gains tax – remains unchanged.

Property expert Pete Wargent.

A $3m cap would relate to the amount that can be held in total in the super system – under current arrangements up to $1.7m can be held tax-free per head in super, anything over that figure can stay in the system but it is taxed at 15 per cent. Under the new proposal, amounts over $3m would most likely have to leave the system entirely.

There are an estimated 11,000 people with more than $5m in super and 36,000 with more than $3m – the majority of these investors are in self managed super funds which have a total population of more than 1.1 million Australians.

Wargent also says that private property investors are key to solving the current rental crisis, where vacancy rates are less than 1 per cent and rental asking prices rose by 30 per cent in the last year.

“People need to have certainty when they are investing,” he suggests.

Also in this week’s podcast we cover:

• Does property really double in price every decade?

• The perils of trying to use a former SMSF property as a home

• Why using the home mortgage is the cheapest form of finance

• Buying in Australia while living offshore

Questions always welcome to [e-mail]