The Australian’s Money Cafe: Why the superannuation rules ceasefire makes super the best tax rate in town
A pre-election truce to refrain from making super rule changes will revive investor confidence – make sure you know how to make the best of it says a top adviser.
An unwritten ceasefire on making significant changes to super between the government and the ALP means super remains “absolutely the best tax rate in town” says a top adviser.
A clear decision between the two leading parties to lay down arms when it comes to superannuation caps and concessions means a clear road ahead for everyday investors says Charlie Viola, one of the highest ranking advisers in the market.
The Coalition has made it a feature of the election campaign that it would not make any adverse change to super.
After a plan to reform super in the last election backfired, the ALP had left the door open to capping the amount that remains tax protected in super at $5m. However, this week, ALP shadow treasurer Jim Chalmers implicitly ruled out introducing such a cap or other changes. The ceasefire means investors can now rely on the rules as they stand.
A regular in the upper reaches of The Australian’s Top 100 Advisers list, Viola of Pitcher Partners says every investor should first make sure they optimise the pre-tax contribution limit of $27,500 per annum and the post-tax limit of $110,000 in super. As Viola explains, there is nowhere else that ordinary investors can invest at a tax rate of 15 per cent.
“All governments want people to access super so they rely less on the pension,” says Viola.
The other key number to know in super is $1.7m, which is the maximum amount that can be held inside super where the earnings on the investments are tax free – once you go over this cap any amount of money can be kept inside the super system but it is taxed at 15 per cent.
Though some key stakeholders in the super system had raised the notion of a $5m cap on this 15 per cent rate for money in so-called “accumulation” – it now looks very unlikely to be contested.
Our question of the week on the podcast came from Daniel:
Q. There is a significant difference between my super balance and my partner’s (self employed) which will only get bigger over time.
I‘m 39 and based on the current situation I will be fairly close to the cap amount at retirement while my partner will be sub $100K.
What is the best strategy to even up super balance to limit any restrictions in 20+ years, plus maximise tax advantages?’
Viola explains that super splitting in couples allows the partner with super savings that may ultimately be heading towards hitting the $1.7m cap to avoid that outcome by using their contribution rights in favour of their partner. In this manner the couple “splits” contributions and they get a better tax outcome while optimising their individual concessions in super.
Next week’s Money Cafe on March 17 is a special edition: The investor’s guide to the Metaverse.
If you have a question on any aspect of investment or business please let us know at:
moneycafe@theaustralian.com.au
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