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Clime time: Taxing unrealised capital gains – is there a better idea?

A recent Senate Enquiry controlled by Government and Green senators confirmed their support for the introduction of a tax on the unrealised gains accumulated in superannuation funds greater than $3 million in value. The Greens senators upped the ante on the government proposal by suggesting that the tax should apply to funds once they reach a lower threshold of $2 million. The Greens once again showing that they despise self-funded retirees.

The efficacy, logic, and fairness of establishing an unrealised gains tax regime will hopefully be hotly debated at the next election so I don’t propose to enter into that debate. However, I will dare to look at superannuation from two different vantage points and challenge our politicians and bureaucracy to think in a completely different way to actually utilise the strategic and unique benefits of Australia’s massive superannuation.

My position considers the two basic benefits of Australia’s superannuation.

First, the obvious benefit that directly flows to an individual when they accumulate enough wealth or savings to secure themselves a reasonable standard of living in retirement. Even more important to an individual is to maintain superannuation to address their needs as they enter their closing years, where age, failing health or misfortune may need to be urgently funded. A self-funded pensioner takes this burden away from the taxpayer.

The second, less discussed benefit, is the consideration of the proper utilisation of the great national accumulation of savings. Part of these savings (available investment capital) could fund much of Australia’s growth without the need for accessing foreign capital. Our massive savings pool can and should be accessed by both private and public investment opportunities. Today, Australia has accumulated near $3.7 trillion in superannuation accounts which is approximately 50% bigger than our GDP. This is a truly incredible amount which will continue to grow for at least the next decade. Given this observation the Government (in particular) should not be timid or scared in accessing some of that capital and more so from those who may be claimed to have too much in superannuation.

In presenting this position I refer readers to this indisputable observation. Today’s Australian stock market listings include numerous large companies that were originally government owned and funded by taxpayers. These companies represent large investments of most Australian SMSF and Industry funds. Think Commonwealth Bank, Telstra, CSL, Qantas and the energy companies that originated from State Government enterprises. There is ample evidence that shows that Governments, in the past, appropriately funded and developed businesses. Think about airport assets and parts of toll roads that are now presented on the ASX. A cursory look also shows dozens of successful private companies that have transitioned to listing on the ASX with public funding and which now account for the majority of successful non-financial industrial companies.

This leads to a point that seems lost in the unrealised capital gains debate. Rather than curtailing superannuation investment by creating a tax that will interfere with capital formation and therefore cruel patient investment, why not create a tax regime that actually encourages long-term patient investment? Why not support Government initiatives to create the next generation of successful companies. Why not support initiatives to provide patient public capital or the provision of government debt funding (trade or development finance) to early stage or fast-growing companies? Why not fast track the development of infrastructure assets, housing, health and education assets? Why not build roads which are true toll roads that return income to the taxpayer rather than highly geared public road operators. Why delay a rail connection from Melbourne CBD to the airport?

There is no shortage of capital available inside Australia’s superannuation system. Further, there is no shortage of opportunity or ideas flowing from Australia’s entrepreneurs. However, there is a growing chasm developing between our massive pool of savings capital and its direction to Australian growth opportunities. The proposed unrealised capital gains tax will widen this chasm and directly inhibit risk capital that flows to start-up ventures outside the development of infrastructure bonds.

So, what can be done as a policy change that would be a superior policy to the proposed unrealised gains tax?

The answer lies in the creation of infrastructure bonds that should be mandated to be only available/accessible to Australian superannuation funds. A directive or requirement to invest in government guaranteed infrastructure bonds aligns this with the maintenance of superannuation tax benefits. Simply stated, Australian super funds would only be able to claim the low taxation benefits embedded in super or pension tax rates if they comply with a mandated investment allocation to Australian infrastructure bonds. Rather than change tax rates that discourage superannuation growth, why not create an environment where more capital is actually directed to the benefit of society and for future generations.

As an example, let’s think about an opportunity that sits as a solution to Australia’s energy transition needs. Why not create infrastructure (green) bonds that are designed to own solar batteries that are then leased to households to ensure that solar generated energy is appropriately stored and utilized? A lease liability on a 10-year battery to a householder would surely be cheaper than the conventional energy bills. A householder would not be burdened with large upfront battery costs that inhibit battery take up. A 5% (or higher) return to bond holders with some indexing could easily be structured and the government guarantee would probably not even be needed.

Some thoughts on how it could apply in asset allocation

It is not hard to envisage a ‘scaled and mandated’ asset investment allocation requirement of say 5% into infrastructure bonds for the first $500,000 (or part thereof) of a superannuation account. This could adjust up to a mandated requirement of 30% (say) allocation for funds greater than $3 million. Maybe a 1% yield above a traditional government bond could be a feature of this unique asset noting that foreigners cannot access it? List infrastructure bonds on the ASX so SMSFs can directly access it.

Let's encourage more funding by our super funds towards pure Australian initiatives, opportunities, entrepreneurs, IP, health care, research, education and infrastructure. Scrap the thought bubble of unrealised gains tax that does the opposite.

Let’s think about utilizing our abundant capital as much as possible rather than defaulting it to offshore markets. Let’s think about superannuation assets from a different perspective that meets the challenge of growing income on pension assets from Australian sources. Let’s focus on what is truly important for Australia’s long-term needs.

In closing, I observe that many large Industry Funds seem to have outgrown Australia’s capital markets, more so because there is no bridge built between their managed capital and Australian infrastructure needs. Recently in mainstream press it is reported that 70% of incremental flows into our largest Industry funds are diverted offshore. These investment flows into foreign investments act to depress the AUD (sell AUD and buy USD) and thereby directly add to imported inflation at a time when we are fighting to bring inflation down.

 

John Abernethy is Founder and Chairman of Clime Investment Management Limited, a sponsor of Firstlinks. The information contained in this article is of a general nature only. The author has not taken into account the goals, objectives, or personal circumstances of any person (and is current as at the date of publishing).

For more articles and papers from Clime, click here.

 

45 Comments
CB
June 03, 2024

Well done John. Hope relevant industry bodies pick up on some of these ideas to push with govt

Chris McSorley
June 03, 2024

The magic formula. Part of the assets are spent sponsoring sports and a good time for management employed Get it into productive assents.

Richard
June 03, 2024

Is this like the post WW2 20-30 rule which required insurance companies etc to invest 20% of their reserves in Government bonds and a further 10% in semi government bonds?

The problem, over the long term, was that the Federal Govt used financial repression to pay off its war debt by artificially depressing interest rates.

Peter K
June 03, 2024

I love this concept John. Put some of the huge amounts of super to work here in Australia with the benefits flowing back to everyday Australians and the very businesses their super is invested in. I'd like to add to your proposal with one of my own - a small business start-up entrepreneur fund. If just a tiny proportion of super funds was directed into a sensibly administered body with the directive to assist promising start-ups and existing small business struggling to get funding to grow. The benefits could be huge. Yes, there would be failures, but just a handful of Aussie Microsofts or Facebooks would more than make up for those.
Our taxation and banking systems heavily favour real estate at the expense of genuine enterprise (try getting funding at a reasonable interest rate without already having sufficient equity in property) yet small and innovative businesses are the backbone of our economy - again benefits would spin off to the community. On the same topic, I also strongly agree with similar funding for owning and upgrading farms and agribusinesses.
Now, here's the big question - what will we do about it? The Brown party (green x red) need more opposition so I'll write to my local member and participate in the formation a group locally to put forward a Teal independent candidate in my (regional WA) electorate to contest the upcoming election next year.
Cheers,
Pete

BeenThereB4
June 02, 2024

Recent governments sorties into infrastructure do not cover them in glory ... Inland Rail, Snowy Hydro etc.

The present mob seem to get "policies" from the ABC Utopia show ... thought bubbles and not much else.

BUT taxing unrealised Cap Gains has me squirming.

Rob
June 03, 2024

Mandated allocation to fund the Govt….what could possibly go wrong? Its almost as ludicrous an idea as the neo-marxism inspired CGT on unrealised gains. How about let the free market decide how individuals allocate capital?

Mark
June 18, 2024

Capital will be allocated in order to win the next election. I'm sure the AFL and NRL will love it and wind and solar farms even though they can't provided base load power.

James
May 31, 2024

Government has repeatedly demonstrated it is a poor allocator of capital. Whether due to poor insight, inexperienced personnel or selfish political reasons is academic! Case in point wasting tax payer capital to build Australian made (expensive) solar panels to compete with China! Destined to fail.

As for wasting more money on the "green energy" madness. No thanks. It will end badly. The worst naive boondoggle ever!

Jill
June 01, 2024

Agree James,
Imagine your Super being used for the Government's thought bubbles. Thank heavens for SMSFs - well away from Chalmers' "honey pot". For now, anyway. I'll be indulging in a lot of travel before they get their hands on my fund.

Lyn
May 31, 2024

John Abernethy, reading your 1st paragrah re 'The Greens' made me wonder what been pondering for while, how on earth have they wandered so far from the path of its' origin in its' early years 'Franklin dam and Bob Brown days' to muddling through the waters of Super matters in 2024 or is just case of being offered incentives by supporting Labour on all issues, you scratch my back & I'll scratch yours? Superannuation subject is so distant from their core enviromental matters/ expertise / aims I can't see how they have time to become 'experts' in finance so are they neglecting their original core issues and reason for being? Not knocking for ensuring funding to shore up enviromental good practice eg. major work projects if they want road fences to protect koalas or somesuch where they do achieve impact in their field. Any ideas?

John Abernethy
June 02, 2024

Hi Lyn

I agree with your thoughts. The Greens don't intend to govern but rather to influence governance.

Hence they don't declare what their policies are. The electorate finds out what their policy is when they respond (in the Senate) to legislation or the policy proposals of government.

In the past the Greens benefitted as a default, "alternative" or "protest" vote against Labor or the Conservatives, as voters lost confidence in politicians on both sides.

By having no stated policy regarding self directed or self funded retirees (for instance), and then attacking SMSFs via the Senate Enquiry, the Greens have shown a real lack of transparency that suggests they will have less default votes to rely on in the future.





Lyn
June 04, 2024

John A, which proves that a vote for Greens is a wasted vote if that voter looking for change of approach to better governance of all matters, not only budgetary matters in which they may not be skilled & all better governance is reliant on figures. Not suggesting they have no place in Govt somewhere as they have helped environment since our Bob Brown Days but they need to stick to what they know or find better advisers for what they may not understand. L.

john flynne
May 31, 2024

A first-rate suggestion > In my early days I was required to invest a proportion in Govt and Semi govt securities and I did not suffer because of the government guarantee. I fear the funds industry would oppose this on spurious reasons because they want control of everything. In pure theory the day you die you should spent the last of your super but that appears to have been forgotten to day it is a means of wealth transfer.
Also it would benefit all if they were compelled to provide home loans so people could have home ownership and not become renters to their Super funds but the Union funds would not want to assist their members in such a realistic way

John Abernethy
June 02, 2024

Thank you John

Really my thinking re infrastructure bonds is to ask - what is possible and/or why not?

There is $3.7 trillion accumulated in super which is 4 times Commonwealth debt and 1.2 times mortgage debt.

Foreigners own $400 billion of our Commonwealth debt so we are paying about $10 billion in interest to foreign bond holders.

As you highlight a residential infrastructure bond to build and to “equity share” housing with low income earners ( for instance) could be developed. Just takes a bit of thought - more than taxing super on unrealised gains.

A significant point is this. A balanced pension portfolio requires predictable and growing income to offset inflation.

We can meet the needs of pensions by creating appropriate income flows from essential national investments.

Investment in housing and other essential infrastructure assets, funded by a “portion” of the abundant super funds available, is not hard to envisage.

Just 5% of super is $170 billion. Some $10 billion of potential income to Australian super/ pension funds.

Can we not think of appropriate investments - as a nation - to secure the quality of life for future generations?

There is too much push back that argues that Government is not a good allocator of capital.

In investing or expending in social infrastructure is it really about a cost benefit analysis based solely on profit?

If profit is the motive we wouldn’t have any of the social infrastructure that we all take for granted - power, healthcare, education, roads, airports etc etc.

john flynne
June 02, 2024

Keep the discussion going.l Ask some of the fund chairman why they oppose this suggestion and listen to their reply. It will be interesting to read them .

Johno
May 31, 2024

They cannot be trusted to handle such vast riches that people have worked and scrapped to care for their futures...
It is entirely the peoples choice in regard to their own,already taxed savings..& if they wish their children to inherit it to pay for their own homes then , so be it...

Interesting but no thanks
May 31, 2024

Requiring Australian superannuation funds to concentrate investments in domestic assets, especially infrastructure bonds isn’t exactly a reduction in risk.
It reduces diversification making the funds vulnerable to Aus economic fluctuations. these types of investments deliver lower returns compared to other growth options.
There's also a risk that funneling investments into projects chosen by the government could lead to misuse and a reduction in transparency.

Also who’s to say this won’t create a ripple effect on its own lol a massive focus might lead to overvaluation in certain markets due to excessive capital influx and then you’ll have another investment bubble. Seeing there’s 600k+ SMSFs and trillions of dollars pooled up, I’m sure people would be quick to jump on this idea and over inflate what they can leverage.

Stick to the ball game. Remember super is for retirement, not a tax reduction haven for us to manipulate and leverage in our old age. Personally invest excess funds and be taxed like the regular Australian. This idea is another idea to drive inequality.

Big stocks guy
May 31, 2024

Johno feel like you’re a bit off the mark here. 

Linda
June 02, 2024

Not sure that is what the article said “ interesting but no thanks”

Based on the investment bands suggested a $1 million may have $75k invested in infrastructure. A $2 million fund may have $200k invested in IBs. Hardly seems excessive and if it generates a government guaranteed yield, builds essential infrastructure, sustains and encourages growth in super - rather than mindlessly taxing it - then I think this is a sensible idea.

There will still be plenty of opportunity for SMSFs to allocate where they want and very large SMSFs will be required to support Australian infrastructure investments to justify their tax benefits.

There are a number of SMSFs with over $10 million in assets and at least 1 with over $100 million in assets. The tax benefits they receive need to be balanced by reasonable investment requirements for how some of these funds are invested.

Is this better than a 30% unrealised tax. Absolutely in my view.

Is it better than having a reasonable asset test on the size of individual super funds? That is another question

Lyn
June 04, 2024

To Linda, agree with your thoughts, think they have wheels with author's thoughts. Would support establishment provided it's run as a fund by proven monetary experts totally separated from Govt intervention for its' management so none of the permanently- appointed figures advisers who never leave Canberra are near it and only the trusees of it decide on its use and allocate funds for Canberra's use after a yield paid to super funds. It could be a go instead of new taxation of Super, better idea than "the Fairies' tax" suggested and truly helping our country. Reckon would equal the Future Fund+ in little time at all. Great stuff. First aim if Govt serious re EV's in this enormous land could be solar-powered charging stations every 300K's ( whatever range needed as not own EV to know) on all our highways so no fear of battery range, if don't have technology to solar- power stations adequately for quick charge then let the fund provide research funds for their invention in our sunburnt country. Wasn't it the paper clip we invented?...... what's in store for us to shine? Hope I live to see it.

OldbutSane
May 31, 2024

This whole new super tax is so badly thought out it is laughable. Why the Government did not simply replicate the Liberals (for all their faults too) $1.6m pension limit system and keep it simpler. It would work as a once off change like the pension limit eg if as at say 1 July 2025 you had used your $1.9m pension limit and had another $2m in accumulation, then you would simply transfer the excess ($900,000) into an "Excess Accumulation" account and an actuary would determine the % of taxable income taxed at 30% each year. Some have said this would be too hard to implement, but it was done for pensions (the ATO knows how much super you have), so why not for a total balance. And a lot simpler in the long run. The $3m could then be indexed as per current pension limit rules, for those with funds just in accumulation phase.

Chris
May 30, 2024

"The Greens once again showing that they despise self-funded retirees.". Oh the irony, as Gen Y, Z and millennials that are the ones who are classic green voters, will likely hit $3m in their super with very little effort and that by necessity, they will be the REAL "self-funded retirees", not boomers that think that a "half and half" super with a state pension top up is somehow being "self funded".

Plus, remember that the $3m is not indexed, so why would the $2m limit ? Turkeys voting for Christmas, if ever there was a case of. As a Gen-X, I laugh.

George B
May 30, 2024

“A lease liability on a 10-year battery to a householder would surely be cheaper than the conventional energy bills. A householder would not be burdened with large upfront battery costs that inhibit battery take up. A 5% (or higher) return to bond holders with some indexing could easily be structured”
Taking into account the relatively high cost and limited life of solar panel infrastructure and in particular storage batteries, I would be very surprised if you would achieve any positive return with this proposal let alone 5% (or higher). Bear in mind that to be viable without subsidy the proposal would need to be financed with 100% borrowed funds and would need to FULLY offset the costs (including the cost of periodically replacing the panels/batteries when they reach the end of their life cycles) against savings on a conventional power bill which would likely still include a supply charge unless you went completely off grid.

Solar Pete
June 01, 2024

Do some more research George.

George B
June 01, 2024

Pete I think the reality is that it may depend on the user-very heavy users of grid power may reach breakeven point sooner while very light users like me, may never reach it at current price points, particularly if they remain on grid.

Dudley
June 01, 2024

"lease liability on a 10-year battery to a householder":
"Taking into account the relatively high cost and limited life of solar panel infrastructure and in particular storage batteries":

AU$1,630.36
2+ pieces, extra 5% off
Complete 8 kw 10 kw 12kw 15kw solar hybrid system off grid solar panel system lithium battery energy storage system for home
https://www.aliexpress.com/item/1005006864222311.html
[ Will it blow up? ]

The cost of PV hardware is less than 20% of total installed cost - because installation is the expensive part.

Instead of subsidising (non-military) local solar panel construction, a very small amount spent on researching substantially cheaper methods of installation would pay much larger dividends.

Panels everywhere. cheaper roofing, fencing, windows, ...,

George B
June 02, 2024

Dudley this listing looks like it is for the battery only (20kwh) and would cost about $2.4K including shipping and GST. It does not appear to include the PV panels, the inverter or installation which will likely bring the total to $10K or more. Given the quality is unknown it may last 10 years if you are lucky or about $1k per annum not including the opportunity cost if the 10k was invested elsewhere. This compares a maximum saving on my power bill of less than $2 per day (the daily supply charge is a further $0.8655 unless we go off grid) or only about $700 per annum on our current plan with Nectr. This means that I stand to lose $300+ per annum assuming the installation works perfectly for 10 years or a lot more if it does not (Solar Pete take note).

Dudley
June 02, 2024

"battery only":

The point I was intending to make is that photovoltaic panels cost about $A0.20 / W and installed connected panels cost about $A1.00 / W.

The cost / money is in the installation - not the panels - and that gubberment money would be much better invested into research into reducing the cost of installation and taking advantage of Chinese subsidies on, and low costs of, Chinese or other competing panels.

That research could include panels as roofing, panels as fencing, panels as exterior walling cladding, panels as windows doubling as insulation, ...

Cheap Chinese batteries might be cheerful.

Margaret Gillett
May 30, 2024

Great to hear someone making sense - we can improve the future for generations with our own money. I have been saying at financial forums for 15 years why are there no vehicles for my DIY super to invest in social housing and essential infrastructure ( A contrarian view during periods of money printing). If our government's keep borrowing at the current rate our debt will spiral as interest are not going too low in the next 15 years. Australian Ethical is just putting it's toe into both these areas - others will hopefully follow.

Robert Oser
May 30, 2024

The proposed super tax on unrealised capital gains is deliberate. The policy adopts the Haig-Simons concept of "income", well loved by Treasury and economists since the 1930's. More than that, the ATO and Treasury have a long-term campaign to squeeze out the life of SMSF's.

Jim Lane
May 30, 2024

Derrick hits the nail on the head. John's meritorious proposal is for discussion (quite simply) - prompted by the banal suggestion from classic political mentality, unable to move its intelligence beyond yet another tax. A grab on unrealised capital gains is as stupid as compensating unrealised losses.
Successive governments have long been criticised for wasting time and opportunities to expand national wealth through investment in infrastructure projects. John's idea provides a decidedly elevated contribution to the issue.

JohnS
May 30, 2024

Would reverting to the pre-costello tax regime solve all the problems

Bring back the principle of giving a tax rebate of 15% of the taxable portion of pension income and tax the pension income at marginal tax rates as the pension is drawn.

For average super fund members, there would still be no tax paid, but for those with large balances, they would be taxed as they drew down the super.

and while you are at it, bring back the minimum pension payments (not like they are now for under 75s where you have the minimum pension, but can recontribute, so effectively making a zero minimum pension).

That will further tax people with large pension balances. Any money left in pension after the death of both partners would then have to be withdrawn (and taxed to the beneficiaries)

Dudley
May 30, 2024

"Bring back the principle of giving a tax rebate of 15% of the taxable portion of pension income and tax the pension income at marginal tax rates as the pension is drawn.":

Bring on the abolition of tax on imaginary (both 'inflational' and 'anticipated') income.

Ramani
May 30, 2024

Using super for infrastructure better matches its long term liabilities with assets (making the regime structurally more stable). If this gets up, no reason why long term investors cannot also deploy their non-super cash in them. More the merrier, by diversifying the sources.
Previously mooted ideas to address the selective tax on unrealised gains (e.g., treating the affected tax-paying entity as a trader rather than investor, taxed and tax-relieved on unrealised gains and losses respectively; refunding the tax if market crashes in the next year's calculation) should also be considered, assuming the revenue-fixated Treasury could contemplate symmetry and equity in tax.
Super, already full of conflicts of interest and duty, will have to confront another intractable conflict the bonds would build in: super fund members will also be consumer of infrastructure facilities funded by these bonds, and when due to external and internal events, infastructure goes through a dismal phase, prioritisation will be problematic. As in the GFC (Andrew Sorkin's 'Too Big To Fail') the taxpayer must step in and bail them out. How this will be managed must be thought through.

Greg
May 30, 2024

Don't wait for the next election. Have the debate now. Taxing unrealised gains is the worst idea that has come out of Canberra in decades. As for telling me where to invest my super; forget it. Domestic batteries are massively inefficient and would be nothing but a waste of money. Infrastructure bonds are a good idea, but let the market decide what are investible opportunities.

George B
May 30, 2024

Totally understand where you are coming from Greg. On the question of domestic batteries I have always considered that the benchmark for affordable solar will happen when I can purchase solar panels and storage batteries with 100% borrowed funds and FULLY offset the costs (including periodically replacing the panels/batteries when they reach the end of their life cycles) against savings on my power bill. I am not holding my breath that we will reach that benchmark anytime soon.

Lyn
June 07, 2024

George B, agree after 14 yrs panels only. Did maths, decided view as future cap/min elec bill as insurance policy against rising cost of elec for future fixed income, felt a retirement cost I would control, first 11 yrs just about achieved as used solar on w/e for meal prep in bulk & freeze when around to cook whilst sun, 3 yrs later despite only use power in day from solar to get all done free, back to high bills. Opportunity cost on shares sold to fund panels, be better off to keep shares re divs/ftc's x 14 yrs, do nothing & pay elec a/c. Won't install battery as similar re opportunity cost,14yrs older and will I live 10-14 yrs to be worth it?

Peter
May 30, 2024

Very good article John. The question "why" is always the most difficult to answer. I would venture that most Parliamentarians wouldn't even understand your questions, let alone have a clue as to how about imagining such possible avenues of capital flow. I just hope that the lunacy of taxing unrealised gains never gets legs.

Peter McIver
May 30, 2024

I have maintained for many years that the government should re-introduce Infrastructure Bonds as they have done in the past. Sydney's harbour tunnel was funds with these bonds. Alan Jones also wanted to see these Bonds re-introduced. We don't need new legislation as the legislation is already in Tax law. I think one of the problems is that the government does not want the liability to repay the money on their Balance Sheet. The other issue is, when they were available, investors could gear into them with a contracted buyer to re-purchase them each 12 months. So, the investor claimed a tax deduction on the borrowing, earned a tax-free income and had a guaranteed buyer. Furthermore, if one geared up sufficiently, he could push his income below the income tax-free threshold and then pay out dividends from their private companies and receive back all the franking credits in cash. Marvelous! AND community projects were quickly funds - everybody happy. OH, I see - that's all too sensible.

Kerrod
May 30, 2024

I'm of the view that this unrealised gains tax is not designed primarily as a revenue raising tool within the superannuation structure. It's intent, and therefore it's design, is to discourage wealth accumulation in superannuation (>$3m) that is sheltered from most forms of taxation and to encourage excess savings and excess superannuation balances to be accumulated and diverted outside of and away from the superannuation system so that it gets caught in other other taxation regimes that already exist - personal taxation, company taxation etc.

I can't think of any scenario where anybody would leave substantial excess wealth in a superannuation fund beyond $3m that will be taxed at higher rates when they can (and if they can) move it out of there and into some other structure that is taxed more favourably - that is what the entire tax planning industry has been built around for decades. There will be a whole new universe of tax planning structure and mechanisms born that will circumvent this.

I do like the idea of the infrastructure bonds though.

Justin
May 31, 2024

Defined benefit superannuation funds are one if the blinds spots...you can't see.

Members cannot remove funds before pension commences and cannot remove funds after pension commences.

Long term members are trapped onto paying an algorithmic tax until they can access and adjust their funds. It's akin to playing 'Moriarti' when everyone else has gotten out of the pool.

Changing the rules is all too common. Both parties do it....we just live with it. But, to bring in a change that cannot be augmented by the targeted few is; biased, undemocratic and one hopes unconstitutional.

That said. I do like John's infrastructure bo nds idea. The rich can give back and great intergenerational wealth at the same time.

VW
May 30, 2024

Bonds, yes. Not sure about mandating percentage of holdings - it would still required members to liquidate assets to afford 30% holdings in bonds, and then they still need cash held aside for pensions and the 15% tax bill.
Interesting thought about the AUD. I hadn't thought about that before. Yes, it is too hard to invest in Australia because we have limited assets to invest in here (the massive problem with the ever increasing residential property prices is a case in point).
We used to be the Clever Country (or so we were lead to believe) Surely, we can put our heads together to think of better outcomes for the massive monies accumulating in super accounts. personally, government leaders need to sit with everyday business people to get their thoughts. It always irked me that Australian Bonds were not allowed in a super fund (this might have changed?). This is plain stupid.
The issue will always be the administration which when in government hands is eaten away with bureaucracy and entities rorting the system that the govt creates, and if administered outside of government it can still be open to misappropriation or embezzlement.
Why is the Future Fund not being used for its intended purposes, instead still accumulating? I have wanted to know this for a while also. The taxpayer is still funding govt employer pensions as I understand it to a massive amount each year (hidden somewhere in the budget each year).

Rob
May 30, 2024

"....is there a better idea?" John - given that taxing unrealised gains is a terrible idea and sets dangerous precedents will not be hard to come up with a better idea! Call it out for what it is, a Wealth Tax and then ask where it will be applied next?

I have no drama whatsoever in the introduction of "Infrastructure Bonds" and if they made sense I would happily invest, however I have a real drama being told where I should invest and how I should allocate Capital set aside for my retirement. Aussies are not stupid and they will follow the "tax triggers" - if caught in the >$3m net, for those that are in retirement, there are clear options to withdraw Super, avoid extra tax, add to your Principal Place of Residence, divert to a Trust or Investment Company, or even to your ungrateful children! Money will move and every chance it will NOT be as the Canberra boffins expect.

Derrick Docherty
May 30, 2024

John's suggestion has merit and should be considered by treasury with input from a select group of investors

Michael
May 30, 2024

How much does the Future Fund in Australia invest in Australian unlisted businesses? Very little I am guessing.

Definitely a concept worth discussing as well as keeping farmland owned in Australia by Australia?

 

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Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Latest Updates

Property

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Exchange traded products

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

Retirement

The new retirement challenges facing Australians

A new report from Vanguard has found an increasing number of Australians expect to be paying off a mortgage in retirement, or forced to rent. A financially secure retirement is no longer considered a given.

Strategy

Why aren’t there more Warren Buffetts?

Warren Buffett is widely regarded as the most successful investor ever. Rather than keep his secret sauce hidden, he's shared his knowledge for decades, so why aren't more investors able to replicate his methods and success?

Retirement

Finding joy in retirement

Retirement can last more than 30 years, necessitating thoughtful planning. Many miss workplace friendships, identity, status, expertise, and routine, but these can be replaced with renewed activities and purpose.

Shares

Bull and bear case for Australian equities for FY25

ASX market bulls point to corporate balance sheets and earnings, while bears highlight company valuations and persistently higher inflation. It's best to ignore short-term noise and focus on investing in quality companies.

Gold

How gold can help diversify your portfolio

As inflation is likely to remain stubbornly elevated, the correlation between bonds and equities could remain high, reducing diversification within portfolios. A gold allocation may help to better protect your investments.

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