Tax Q&A – Proposed Changes to Superannuation -Tax Experts Go ‘Head To Head’
Q: The federal government announced a number of new initiatives and policies in the 2016 Budget, including significant changes to superannuation. How will the proposed budget changes around self-managed super in particular affect property investors?
A: The proposed changes to superannuation funds in the recent budget have focused mainly on the wealthy no longer being able to transfer millions of tax-free dollars into their retirement accounts. The lifetime limits for non-concessional contributions to superannuation have significantly decreased as well.
These changes mean that, potentially, many people will have already made non-concessional contributions in excess of the $500,000 lifetime limit from 2007. This means they will not be able to contribute any further non-concessional contributions into their super funds.
Prior to the recent announcements in the budget, many relied on making further contributions into their superannuation funds in order to invest in property with these superannuation funds. In contrast, previously the only contribution limit by way of non-concessional contributions into superannuation funds was $180,000 per annum.
Over a 20-year period, this amount aggregates to $3.6m; going forward, it is now capped at only $500,000 over a member’s lifetime. This is a significant difference and does not even take into account inflation and compounding returns on investment.
Q: What does this potentially mean for investors who wish to invest in property with their superannuation funds?
A: This depends on whether the property investor is already wealthy, with a sizeable property investment portfolio in a superannuation fund. It also matters whether the property investor does or does not have sufficient funds in a superannuation fund and wishes to invest in property within super.
Generally, there are fears that it is the wealthy who will mainly be affected by the new superannuation rules because there will now be a limit to how much money they can contribute, especially tax-free, into their superannuation funds. For these investors there will be no advantage in shifting cash into superannuation.
Therefore, wealthier investors will most likely consider other vehicles and structures for investing in property, especially with negative gearing in their own names as opposed to investing in
property with their superannuation funds.
– Angelo Panagopoulos
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