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What to do if you have a superannuation balance over $3 million – Strategies

What to do if you have a superannuation balance over $3 million – Strategies

Assuming that the extra tax on super balances over $3 million draft legislation makes it through Parliament, here are a few strategies to consider if you are affected;

1. Look at alternative structures

If your balance in super is well over $3 million, and you are in retirement phase or over age 65, you could look at a number of options including utilising a family trust as earnings in this vehicle can be split. A company could be another option as only realised gains are taxed here – not unrealised.

2. Look at adding members to the fund

As the $3 million balance is levied on an individual basis, there is scope to add additional family members or if you spouse’s balance is significantly lower, even it up.

3. Look at withdrawing money from super

Again this will benefit the permanently retired or over 65’s, but the idea here is to reduce your balance below $3 million and, as an option for instance, is to give it to the kids to assist in paying off their mortgages, HELP debts or their own superannuation and provides a good financial basis for them. This also has the added advantage as the kids (meaning adult independent children) will also avoid paying the super death benefit tax which non-dependants have to pay when they receive a superannuation benefit after the death of a parent for example.

4. Look at your superannuation portfolio

What you hold in that $3 million plus portfolio may be better outside of super. Growth assets, for example, are still eligible for a 1/3 CGT discount in a superannuation fund on realisation regardless of the balance. This means that realised CGT gains are taxed at an effective rate of 10% (being 15% x 2/3) on balances up to $3 million and 20% (being 30% x 2/30 on balances over $3 million.

Income type investments such as bonds, debentures, fixed interest, term deposits and the like would be taxed at a similar rate to a company where the balance of the fund is over $3 million.

Investments which pay fully franked dividends are still attractive to a superannuation fund as the offsetting franking credits will negate the additional tax but you may still be paying tax on the unrealised earnings where those companies have increased markedly in value.

5. Look at your contributions

If a member still in accumulation phase is close to hitting the $3 million balance, it would be prudent to consider alternative investments and perhaps just putting in mandatory contributions. The other issue with putting all your money into super is that you can’t touch it until retirement or age 65.

6. Take it slow

The best advice is to not panic and to wait until there’s more detail and progress through Parliament as many of the details are currently contentious.

Feel free to come and see us here at Stewart & Smith Advisory Pty Ltd for a chat!