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I am a member of the Switzer Super Report and read your comments with great interest.

Here are my thoughts and a possible scenario if the superannuation changes are applied, but hopefully it won’t materialise. However, I think it is important that the powers to be are made aware of how many Australians will, in fact, be worse off.

Example – a small business owner who is planning to retire in May 2013 and is now subject to the new superannuation proposals.

  • Retiring with $1,000,000 in accrued superannuation from working hard all his life in a small business and contributing to his DIY superannuation.
  • Plans to invest the $1,000,000 in several conservative managed funds in Australian shares with an income of less than $100,000 per annum.
  • It is also possible to assume that, in addition to income received, a capital growth of 10% per annum on this investment may be achievable over the coming five years.

Fast forward to 2018. Retiree becomes nervous of the share market or, for any other personal reason, exits his invested funds and returns to cash.

The retiree’s new balance five years on in 2018 is now $1,610,510. ($1,000,000 plus a capital gain of $610,510).

Scenario with new rules in place

The capital growth now becomes a taxable realised capital gain of  $610,510 as it has been withdrawn within the one financial year.

Now for the tax bill:

$610,510 less 33% discount for holding for over 12 months = $409,042 (The commencement date of the investments was post 5 April 2013 and the 10-year accrual rule does not apply.)

Taxable Income for the financial year:

$409,042 capital gain plus income drawn, of say, $60,000 =  $469,042

Less: $100,000 income threshold – so tax would be paid on  $369,042

Results: a tax bill of $55,356

This is an Australian small business owner, retiring in 2013 with $1,000,000 in superannuation. On 5 April 2013 he was not a  “super wealthy Australian” with superannuation of $2,000,000! In fact his balance was $1,000,000 and he is being subject to a tax bill under the proposed changes.

The new superannuation rules are flawed and the reference to only affecting those with a superannuation balance of over $2,000,000 is false and misleading to the general public.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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