Question 1: In reference to the $3 million tax on super funds conjured up by Labor, I am of the understanding that an SMSF will be taxed as usual and that the new tax on assets over $3 million will be added on. Can you please confirm? Also putting on your prediction hat, is there likely to be a fall in share prices in the months leading up to 30 June 2025 as trustees reduce their shares to minimise the effect of the new tax?
Answer: That’s correct. An SMSF will be taxed as usual, and the new tax will only apply on the assets over $3 million. As currently drafted, it will be a separate tax of 15% on the investment earnings of the fund, pro-rated to those assets over $3 million. Investment earnings include both realised and unrealised income.
What impact will this have on the stock market? “Crystal balling”, I don’t think it will be that material. Firstly, there aren’t that many funds impacted; secondly, by selling assets, SMSFs will potentially generate a CGT liability (although in most cases, at an effective tax rate of 10%) and thirdly, inertia by SMSF trustees (what do they do with the money?) You might see some movement out of “growth” style shares into “income-oriented/less volatile” shares.
Question 2: We have an SMSF and are both in pension phase, with nil balance in accumulation. We both have maximised our Transfer Balance Cap by making non-concessional bring forward contributions. We both have Reversionary Pension Nominations to each other. When one of us deceases, we plan for the surviving person to withdraw their entire super and use the deceased person’s super as their Super for Pension. Is this doable? What are the implications on Transfer Balance Cap for the surviving spouse?
Answer: The main advantage of a reversionary pension is that it is “automatic” in that the pension benefits flow directly to the deceased partner (the reversionary beneficiary). The Trustee doesn’t have to stop the deceased’s pension before starting another to the beneficiary. Further, In some rare cases, a BDN (binding death benefit nomination) may be challenged.
There is also an advantage in that a 12-month grace period is allowed with respect to the transfer balance cap (TBC). To allow reversionary beneficiaries time to get their super assets in order and avoid breaching their TBC, the value of a reversionary pension is not added to the beneficiary’s transfer balance account until 12 months after the member’s death.
Beneficiaries may need to take action to avoid exceeding their cap. This could be commuting some of their own pension back to accumulation phase to make ‘space’ for the addition of the reversionary pension or choosing to commute some or all of the reversionary pension to a lump sum. In relation to your strategy, yes, it is “doable”. You may want to review this with your adviser.
Question 3: What do the broker analysts say about Fortescue Metals (FMG)?
Answer: The major broking analysts are quite “bearish” on Fortescue. Six out of the leading 7 analysts have a “sell” recommendation, the other has a “hold”.
Compared to BHP and RIO, they see far more downside. The consensus target price is $21.11, some 25.7% lower than the last ASX price of $28.41. The range of target prices is a low of $17.30 through to a high of $24.70. For BHP and RIO, the downside is only 0.6% (for BHP) and 0.2% upside for RIO.
Question 4: Is Pilbara Minerals (PLS) still your preferred way to play the lithium market?
Answer: Yes. It is a low cost producer with tier one assets and is working (with partners) to be involved in the downstream production processes. Yesterday’s production report was strong (although it did warn that it wouldn’t be paying any dividend). Broker views (and target prices) are heavily influenced by long term forecasts for the commodity. Currently, the consensus target price is $3.75, 8.1% higher than the last ASX price of $3.47. The range is a low of $2.85 through to a high of $4.40.
