The Federal government has announced a plan to increase the tax rate applicable to member balances over $3M from 1 July 2025 to 30% (up from 15%). The detail is not yet published, however, for members with balances that exceed this amount, an initial reaction might be to look to how to withdraw their funds. The question however needs careful consideration (as well advice from a licenced financial advisor).
This article flags some issues for consideration when looking at that question:
- Can I take out my super? A member must meet a condition of release (such as reaching age 65 years, or reaching 60 years and retiring) before they can withdraw their super. It goes without saying that in order to validly take funds out of super, you also need to follow the terms of the relevant deed.
- What is the immediate cost of getting funds or assets out? Here you would need to consider capital gains tax in the fund, stamp duty on dutiable assets, as well as transaction costs. If you are going to incur capital gains tax, it may be worth considering if there is any merit in planning the timing of sale or transfer over the 2023 year and the 2024 year.
- What are the ongoing costs of holding assets outside super? Apart from comparing the income tax rate, it will be important to consider the impact on land tax and aggregation (for real estate) and the capital gains tax rates in the future.
One benefit of withdrawing superannuation during the lifetime of a member over the age of 60 years, is that it will not be subject to tax on their death in the same way as if it remained in the fund (when paid to non-tax dependants). - What about using a family trust?
- This may have merit but consider broader implications such as costs of administration, costs of transferring assets to the trust and additional costs within a trust (such as extra land tax surcharge).
- Decisions such as Re Owies make it clear that you cannot consider assets owned via a trust in the same way as those you own personally, and that the fiduciary obligations imposed on a trustee will be taken seriously by the Court.
- What are other implications?
- Super is a very well protected vehicle against bankruptcy. Taking super out will potentially expose those assets to any creditor risk the member may face.
- Converting super to another structure or to hold in the member’s sole name will have estate planning implications. For those members who have estate challenge risk, moving assets to their own name may increase that risk.
The devil will be in the detail, but advisors and members of SMSFs need to start thinking about these questions sooner rather than later.
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