Superannuation is an important component of personal wealth growth and long-term financial planning for many Australians. By contributing to their superannuation accounts over time, individuals can accumulate a significant amount of wealth that can be used to support their retirement lifestyle. The favourable tax treatment of superannuation also means contributions made by employers and employees are taxed at a lower rate than regular income tax, making it an attractive way to save for retirement.
As superannuation balances grow, they can also be used to invest in other assets such as property, shares, and businesses, providing additional opportunities for personal wealth growth.
Government confirms plans for $3 million super cap
The Australian government will double (from 15% to 30%) the tax on superannuation balances over $3 million starting from July 1, 2023, affecting around 2,000 people. The move is aimed at reducing inequality and increasing revenue for the country, as some individuals have accumulated large superannuation balances. The tax increase has been welcomed by many as a step towards a fairer tax system, while others have criticised it for targeting successful individuals and potentially discouraging investment and entrepreneurship. The revenue raised from the tax increase will be used to fund essential services and support for those in need.
Self-managed super fund SMSF and pensions
Steps to buying property using SMSF:
First, the client needs to set up an SMSF, establish a trust deed that allows real estate investment, and ensure that the SMSF has sufficient funds to purchase the property and pay the related fees. Next, identify suitable properties and conduct thorough due diligence, including inspections, valuations, and assessments of potential rental income. Finally, negotiate the purchase price and finalize the sale and the title to the property is transferred to SMSF.
Benefits of Buying Property with SMSF:
Tax Benefits: Any rental income earned from the property is taxed at a lower rate within the SMSF(15%) than it would be outside of the fund. Capital gains from the property sale are also taxed at a lower rate if held for more than 12 months (10%) and 0% in the pension phase. Complying SMSFs are entitled to a capital gains tax (CGT) discount of one-third if the relevant asset had been owned for at least 12 months.
Control: By purchasing property through an SMSF, investors have greater control over the asset and the investment strategy.
Long-Term Investment: Property is often considered a long-term investment, which aligns with the goal of SMSFs to provide retirement income for members.
Federal Budget 2023 – super and retirement
In a positive development, the government has left the superannuation caps and limits unchanged, providing investors with much-needed certainty. The current concessional and non-concessional caps remain at $27,500 and $110,000, respectively. The total superannuation balance (TSB) cap of $1.7 million remains unadjusted, but it will likely increase to $1.9 million from 1 July 2023 due to indexation.
The government has also confirmed that it will lower the minimum eligibility age for making superannuation downsizer contributions from 60 to 55, allowing individuals aged 55 or over to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their main residence. The reduced age limit will apply from 1 January 2023. Downsizing will also be incentivized by extending the exemption from the asset test for sale proceeds from 12 to 24 months and applying only the lower deeming rate for income test purposes during this period.