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Contributions, Superannuation, Tax

$3m cap shouldn’t stop inflows

Contributions

Trustees should continue to contribute to their superannuation accounts as not doing so would not be a prudent strategy to adjust to the proposed super earnings tax.

An SMSF technical specialist has advised trustees against ceasing contributions to their super as a strategy to mitigate the impacts of the proposed $3 million superannuation earnings tax.

Speaking at the SMSF Association Technical Summit 2023 on the Gold Coast this week, Heffron managing director Meg Heffron highlighted several important reasons why trustees should keep contributing to their super.

“Let’s be realistic, these are the people who have already moved beyond non-concessional contributions. Their balances are too big, so they are not thinking of non-concessional contributions, they are generally thinking of concessional, CGT (capital gains tax)-exempt or downsizer contributions,” Heffron said.

“The argument I would make is there’s no way these people should stop making those contributions for a couple of reasons. The most obvious one being we don’t even have draft legislation yet. It’s certainly not in, so let’s not panic too much yet.

“Secondly, about 70 per cent of our clients who will be affected by this are over 65, so they can put their contribution in now and if they hate the idea in a couple of years’ time, they can take it back out again.

“Thirdly, each of those contributions often have another driver, [for example] they want the tax deduction down for the concessional contribution.”

She suggested the absence of formal legislation meant the conditions and benefits of specific contributions could still appeal to trustees.

“With the CGT-exempt contributions, you’re trying to mitigate tax on the business sale or with downsizer contributions, this might be the one chance you get,” she noted.

“Downsizer contributions, CGT-exempt contributions, the great thing about those types of contributions is they come in as tax-free money. They look and feel pretty much like a non-concessional contribution.

“These clients are also the ones that can’t do recontribution strategies anymore because they’re balances are already too high.

“I think there will be very few clients who are already in the territory where they can take money out again who say ‘I’m going to stop contributing’. I think they’ll just keep going until we actually have some real live legislation and it’s started.”

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