Ask the Expert: When capital gains meet superannuation
There is a whole range of super benefits and liabilities that can be affected by having a capital gains windfall.
Question 1
Hi Craig, your column is great and it’s often the highlight of my Monday morning.
Quick question, I recently sold some shares that I’d received as a bonus when I worked for a large company years ago. I coughed up my capital gains tax to the ATO, but because the gain sent me over the division 293 threshold I’ve received a demand to pay additional tax.
This feels like a clumsy form of “double taxation” to me. I’m keen to know your thoughts
Yes, so much of our tax system is based on what assessable income you have for a particular financial year.
So when you sell an asset and make a capital gain, it can have some ripple effects.
First, the gain (less any discounts) gets added to your taxable income and you have to pay income tax on it. The gain may even put you into a higher marginal tax rate so you pay a higher percentage of tax on that gain.
Second, as you have pointed out, if the gain takes your income for the year to $250,000 or more, then you have to pay additional tax, of up to 15 per cent on your superannuation contributions for that year. This is called division 293 tax.
Finally, there is a whole range of other benefits and liabilities that can be affected by having a larger assessable income because of the gain. This includes, but not limited to:
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It can seem tough paying lots of extra tax/losing benefits because of one high-income year. However, there is not an easily solution to this.
Forward tax planning can help. Things like selling assets when you are in a lower income tax year, making extra tax deductions, having tax offsets etc. However, I realise this is not always practical or possible.
There is talk of re-jigging the CGT regime but I’m not confident this issue will be changed.
Question 2
My husband retired this year when he turned 60. His financial adviser messed up his retirement plan by closing his account fully.
We were wanting to keep a portion open so we could add more savings into the account. I am still working. My father has given me some money I have put into my super account so I am now up to my limit and need to wait three years before I can add more.
Now we are not able to put our savings into our husband’s super due to the financial person’s mistake. We will have to pay tax on interest earned and we’re not going to be having it work for us for our retirement.
My question is, is there any way my husband can get this fixed without opening another account, with another lot of fees, since it was not our doing?
The financial adviser also stuffed up when my husband gets paid. Is there a way to get the date changed? Thanks.
There are a few things you can do.
First, you can make a complaint to the company that authorises the financial adviser to provide financial advice. This will be listed in their Financial Services Guide with details about how to make a complaint.
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If not happy with their response, you can then escalate to AFCA.
However, you have to weigh up whether it is worth doing all of the above or simply have your husband open a new super account.
It’s pretty easy, your preferred super fund will be more than happy to assist and there should be no fees for doing so (if you don’t need further advice).
Question 3
I have turned 65 – what now for my super?
Age 65 is in an important one in the Australian retirement context.
It used to be the Age Pension, however, that has now moved to age 67.
However, 65 remains the age that you can fully access your super without any other conditions being met (you can also access all of your super between 60 and 64 if you cease an employment arrangement after turning 60).
What to do with your super is entirely up to you as you now have full flexibility.
Most people put some or all of their superannuation into a retirement income stream. These are paid tax free and can provide a regular income, which is what most retirees want.
You have the option of cashing some or all of it out. However, I would do this only if you have a specific need, i.e. to pay out a loan or for a planned large expenditure.
You don’t have to do anything with it. You can leave it as is, although that is often not the optimal outcome.
But you will need to leave some funds in your super to keep it open if you are still working and expecting future employer contributions.
A good first step is contacting your super fund and exploring your options.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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