WEALTHY Australians are shifting billions of dollars out of their tax-free superannuation pensions ahead of tougher new rules — but in most cases the money is going straight into another super fund.
A new limit of $1.6 million on how much people can hold in tax-free super begins on July 1, a move expected to return $550 million to taxpayers next financial year — and $1.5 billion the following two years — by removing a huge tax shelter that the rich have enjoyed for a decade.
Australian Taxation Office data shows that there are almost 2900 self-managed super funds holding more than $10 million and almost 80,000 with between $2 million and $10 million. Last year there were six SMSFs worth more than $100 million, while more sits in large-balance corporate and retail super funds.
Retirement experts say most of the money being kicked out of tax-free pensions is not going into exotic structures or the general system where income is taxed at up to 49 per cent, but is switching to regular super funds where 15 per cent taxes apply.
Some say the new rules replace a “ridiculously generous” 2007 law that has allowed wealthy retirees to hold an infinite amount of money in a super pension and pay zero tax on its income and profits. Average retirees have less than $300,000 in super.
Tax Commissioner Chris Jordan told a recent SMSF Association conferencethat most of the largest balances had been locked up in super long ago. “They tend to be people in their 80s and late 70s,” he said.
Marinis Financial Group managing director Theo Marinis said some wealthy people were pumping extra money into their regular super now, because they would not be allowed to make after-tax contributions after July 1 if their fund already held $1.6 million.
“That shows that super is not as bad as people made it out to be. It’s not as generous as it had been, but it’s been ridiculously generous until now. The tax-free status only came in 2007,” he said.
“That’s why people are throwing more money in. If it was bad they would be taking it out. It’s still a great place to be.”
Some spouses have been withdrawing super and reinjecting the money in their partner’s name, because the new $1.6 million cap applies to each person, allowing couples to hold a combined $3.2 million of tax-free savings.
Hewison Private Wealth director Chris Morcom said most people with large super funds also had plenty of assets outside of superannuation. “So it makes sense to still hold money in super even if it’s taxed at 15 per cent,” he said.
Mr Morcom said SMSF members could move assets out through paperwork, but wealthy retirees with retail or other super funds would need to act quickly to set up a new account.