The Money Side

Sydney Morning Herald

Wednesday August 20, 2008

By Greg Lomax. Greg Lomax is chief executive of Huthnance Lomax accountants and financial advisers and a licensed financial planner.

At a seminar on self-managed super funds a couple of weeks ago, one speaker described Australia as a tax haven for retirees. Nowhere in the world are superannuation benefits better for retirees than here in Australia.

Perhaps the speaker didn't go far enough. Australia is also a tax haven for people who haven't yet retired. And if it's good now, it could get even better.

Superannuation must be seen as an important component of any financial strategy for a small-business owner. Tax changes to superannuation have had an even bigger impact on people who haven't retired, particularly those who are better off.

This group has recognised that superannuation tax changes offer great tax advantages for their assets and income before retirement, resulting in a massive asset shift to tax-favoured superannuation.

There are three main reasons this has changed the traditional investment methodology in Australia:

1 Over-50s can now make a $100,000 tax-deductible superannuation contribution

with the chance for a $200,000 a year contribution for a husband and wife small-business team up until 2012. For high-tax-paying businesses, this contribution represents a golden opportunity to save up to $63,000 in tax a year.

2 Those over 55 can access super benefits under a transitional retirement income stream (TRIS) without retiring. Therefore, by salary sacrificing, significant tax relief is achieved and the superannuation TRIS can be drawn on to replace the salary sacrificed to super. Some tax is payable on the TRIS drawdown (a 15 per cent rebate applies) and there is a maximum of 10 per cent of the balance of super that can be drawn each year. But the super benefits that pay the TRIS are transformed into a zero tax state on income and capital gains.

3 For people over 60 the largest tax advantages occur as access to super via the TRIS strategy is completely tax-free and there is no need to retire. The underlying assets in super that are used to fund a TRIS do not pay tax on their income or capital gains. Maximum limits apply on the amount that can be drawn on a TRIS (10 per cent) until you reach 65, retire or satisfy a completed condition of release of your super benefits.

As a direct consequence of the above, small-business owners and high-net-worth baby boomers have recognised a tax haven evolving not only for retirees but for those over 60. This starts earlier for some and has resulted in a big wealth shift to superannuation assets.

Residential investment properties and many other assets have been sold and funds moved to super, in particular to the fast growing self-managed super-fund area.

These self-managed super funds have had impressive growth, especially during the past two years, and contain $350 billion in assets. There are now more than 380,000 such funds in Australia with 750,000 members and, according to actuaries, they will have more assets than any other sector by 2015.

The flexibility of holding investments has been the main drawcard for setting up a self-managed super fund but the recent Government legislation allowing a type of borrowing (via instalment warrants) to purchase direct property, and especially business premises, has caught the attention of the entire super industry.

Email greg@huthlom.com.au.

© 2008 Sydney Morning Herald

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