Larry Schlesinger | 5 February 2013

Mooted super tax changes a concern for SMSF property investors: Nick Sherry

Mooted changes to superannuation tax rules have come under fire from former federal Labor superannuation minister Nick Sherry. 

The mooted unconfirmed changes, which would affect those with superannuation balances in excess of $800,000 to $1 million, comes as property continues to grow as an investment class for those with a self-managed super fund and with big industry super funds looking to offer members more flexibility to re-weight their portfolios more heavily in favour of property.

At the same time industry super funds are looking to invest more heavily in income-generating commercial property assets as flagged by AustralianSuper chairwoman Elana Rubin in October last year. 

SMSF income is currently generally taxed at a concessional rate of 15% with around a third of SMSFs have assets in their portfolios worth more than $1 million, according to ATO figures.

Commercial property comprising more than 11% and residential assets about 4% of the portfolios of SMSF funds with assets worth more than $1 million. 

It has been speculated Labor plans to use the next federal budget to target the wealthier families who get disproportionate tax advantages in super as part of its strategy to appeal to its traditional supporters, lower and middle-class earners.

The unconfirmed speculation suggest Labor is proposing to pare back around $30 billion in annual tax concession on super, which are set to rise to $45 billion by 2015/16.

It is also considering a tax on withdrawals made by individuals with super account balances of at least $800,000.

In last year’s budget it signalled its intention to target super tax concessions when it increased the tax on super contributions from 15% to 30% for those earning over $300,000, and has reduced the general tax-free contributions cap to $25,000 from $50,000 a year. 

Nick Sherry, who was federal superannuation minister from 2007 to 2009, is urging the government not to change the way it taxes super and consider other ways to raise revenue, including cuts to contributions to generous public service super. 

Sherry told today's The Australian Financial Review, the current tax treatment for super was “appropriate” though he did add that there were areas within the super system that require attention. 

He said the current retirement access age for super of 60 should be raised to 67, which is what the pension access age will climb to over the next decade. 

The retirement access age allows people to work part-time and draw down their super at the same time.

“The indirect policy response of those two policy changes would be to constrain to some degree the growth of super tax expenditures, and that’s the area I think governments need to focus on,” he said.

He also called for the government’s contribution to military super should be cut from about 28% and public sector super from 15.4% and said there was “no justification” for such a level of contribution “above the community standards”.

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