To follow on from my previous post. The Private account now has a tax liability of $4,925,000 @.47 . Assuming other earnings puts the taxpayer in the top tax bracket. For simplicity, because this is anything but simple. That leaves them with $4,925,000 less tax $2,314,750 =$2,610,250.
In the final wash up the Private account with all shares sold and tax paid = $7,685,250.. They paid tax at a rate of 23.14%.
The Super Fund was left with$5,105.000 and paid tax at a rate of 48.95%. So effectively the Super Fund paid twice as much tax as the Private Account in this scenario. The top tear tax rate is 47% , so even paying full tax without a CGT discount is better than using a superannuation account, in this case. Remember this is only a minor tweak to superannuation.
Now this next scenario is where this gets really savage on the mug punter who is hoping to eat in their retirement.
When the Superannuation Account goes from $3M to $6.25M as it could have when IMU ran from .29 to .62.5. Then if it hits $6.25m on the 30th of June , then you have a tax liability at COB that day of $975,000. But you’re on holidays or very sick in hospital that day , so you’re not even thinking about your superannuation. The next minute the BOTS dump heaps of IMU and it drops back to a level leaving only $3m in your account. Then your acccountant or smsf manger does your taxation. You get a bill from Dim Jim the working man’s friend, for $975,000 tax which was calculated at the 30 June. So then you sell $975,000 shares at the worst time.
You have planned and researched and sweated for years. Now your Superannuation balance has dropped to $2,025,000. That’s $975,000 less than the account held in a private name. You’ve actually lost 31.% of your superannuation. But don’t feel,bd , that money has been converted to honey for the Political Elite to help with Social Equity.
This isn’t financial advice, just some rough thoughts about investing in high growth high risk shares. Which entity you use is very important.
If we now look at the 5 year mark, IMU is trading at $10. That’s because IMU is paying a 5% Fully Franked dividend. The Private Account Holder is earning $500,000 PA fully Franked @25%. The Super Fund is earning $255,250 fully franked.
Assuming the Private account holder is still in the 47% Tax Bracket they effectively pay another 22% tax on their $500k= $110, leaving them with $390,000 tax paid. The Super Fund pays 30% Less the franked dividends of 25%, leaving them with a tax bill of 5% of $255,250= $242,500 tax paid. The Super Fund holder is down anther $147,500.
Superannuation isn’t looking so good under this scenario. When taking into consideration that Tax Legislation will be dictating when the Super Fund will be selling the risks can be very high. Whereas Superannuation was designed to provide for retirement with a degree of safety, these new rules bring into play an extra risk, possible high risk due to the nature of the share market. What if we have a market crash which does happen from time to time where where share may drop by as much as 60% like Black Tuesday 1987. But Super funds are forced to sell for Tax Committments. Because these gains are unrealised as of COB 30 June.
I would really appreciate any input from other posters who have more understanding of taxation than I do. Because at this point I am very much considering closing down my SMSF and avoiding all superannuation. Din JIM has turned a safe haven into a speculative risky investment. This is like playing roulette at the casino where the house always wins.
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