Opinion
Should I sell shares to keep my SMSF below the new $3m limit?
By George Cochrane
This is my last column. Retirement beckons! Many thanks to all those readers and their letters who have supported this column for over 34 years. I hope my advice has been helpful.
My wife and I receive an account-based pension from our SMSF. I am 79 and she is 78. My wife’s holding was $675,590 and mine $1,599,956, as of July 2017. Our combined SMSFs are invested in Aussie shares and give us a healthy return which includes imputation credits. However, some of our shareholdings have more than doubled in value since, which has brought my part of the SMSF well over the $3 million limit which the government intends to bring in. We never had an accumulation fund when we commenced our pensions. What will be the tax implications if my SMSF reaches $4 million and my wife’s $1.8 million? Should we sell some of our shares to stay below the $3 million threshold?
If your super benefit is valued at $4 million in July 2025, and your wife’s is $1.8 million, then 69 per cent of the fund’s income will fall into your account. Of this, 75 per cent of your income will be untaxed and 25 per cent taxed at 30 per cent, including any capital gains tax. Your wife’s benefit remains untaxed.
Limbo moves: investors with large amounts in super are working out ways to stay below the proposed $3 million super cap.Credit: Simon Letch
Some calculations I’ve seen indicate that anyone whose (non-super) taxable income is above $45,000 – the lower threshold for the 34.5 per cent tax bracket, including Medicare – is better off keeping their money in the super fund.
Some say it’s unfair since the $4 million valuation (in this example) includes unrealised gains. But I perceive the objective of super is to allow people a decent income in retirement with a tax benefit. It shouldn’t be used to keep rich people rich at the expense of the less fortunate.
I inherited my husband’s rental property (bought in 1975) when he died in 2017. During that time, it was mostly rented out. As an inheritance, was the house’s value its value in 2017, or did the property value retain its cost basis? If I decide to sell this inherited property, regarding CGT, am I able to use the 2017 value or am I obliged to use the cost basis value of the property as when acquired in 1995? The difference in CGT would obviously be considerable.
You mention 1975, then 1995, and I’m not sure which is correct, so let’s answer them both.
If the property was bought in 1975, 10 years before capital gains tax was introduced, then it remained exempt from CGT until the owner sold it or died. So if your husband bought it in 1975, before bequeathing it to you, then your cost base is its value as of the 2017 date of death, plus any capital improvements, or outlays such as valuer’s fees, building inspection, accountant’s fees, etc, you may have made since.
If the property was bought in 1995, 10 years after CGT was introduced, then you would have inherited his cost base, which would basically comprise the sum of the price he paid in 1995 plus stamp duty plus any capital improvements or outlays either of you made.
My question relates to the maximum permitted in an allocated pension. Previously, this was $1.6 million and was raised to $1.7 million. However, when I closed and reopened an account for $1.7 million, the ATO rejected this even though the super company thought it was okay. This is important since the maximum is set to increase again.
You’ll need to open an account on the MyGov website, then connect to the ATO section and find your “Personal Transfer Balance Cap”, or Personal TBC. It will be different to the General TBC of $1.7 million. Or ask your accountant, though it sounds as though you haven’t been talking to them.
You indicate you started with a $1.6 million super pension in 2017 when the General TBC was $1.6 million. You thus cemented your personal TBC at $1.6 million, i.e. you had used up 100 per cent of your cap and had no available cap space. Thus when the General TBC was raised in 2021 to $1.7 million, your Personal TBC remained at $1.6 million.
If your pension had risen to $1.65 million, and you cashed it in or rolled it over, you could only start another pension with $1.65 million.
Let’s say, instead, someone had $500,000 in an existing super pension (or started one) in July 2017. They would have used 31.25 per cent of the $1.6 million General TBC, rounded down to 31 per cent, leaving 69 per cent unused cap. When the General TBC was raised by $100,000 to $1.7 million, they could use 69 per cent or $69,000, taking their Personal Transfer Balance Cap to $1,669,000 as of July 2021.
The same will happen from July 2023 when the General TBC is indexed up by $200,000 to $1.9 million. Again, they can use 69 per cent or $138,000 taking their Personal TBC to $1,807,000.
I have just turned 60, my husband is 50, and I have recently retired. Our property is valued at $4 million and have accessed my super to pay down the $300,000 mortgage. My husband has $500,000 in super. We are considering relocating to Europe to a less expensive property so we can travel. We prefer not to work, have no children and intend to spend all our money. What would be a good strategy?
You might find that Western Europe is not much cheaper than Australia, if at all, but you might find a lower-cost home in southern or Eastern Europe to use as a base.
Remember that, in years to come, if one of you has to move to an aged care residence, you can be looking at a cost of entry between $500,000 and $1 million and, as a rule of thumb, annual fees of around $50,000. Your husband, in particular, is young to retire but if you do, then, certainly, enjoy travelling but always keep a nest egg for later in life when you cannot do so.
Personally, I can’t see any reason to leave this land of Oz!
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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