Have a look at this write up of the budget by a financial planning consultant. Now that all manner of restrictions have been lifted from the super system, the standard method for avoiding tax for those in their late forties and early fifties, will involve something like this. Borrow to live (if necessary – though it makes more sense to live off the rent on your investment houses and dividends while you allow interest used to fund the purchase of these assets to capitalise – this 1 keeps your interest bill tax deductible though you have to watch out for Hart’s case).
You salary sacrifice all the additional income you earn over some nasty tax threshold into super and then withdraw it on retirement. Once you retire you can even deposit your income into super to reduce tax and withdraw it from your super fund to ilve on.
I haven’t checked out the details – some troppodillians may be able to fill us in – but it sure is a mug’s game to pay more than 15% tax if you’ve got a fair bit of money and you’ve made it out of your thirties for a few years.
The 2006 Budget may go down in history as the one that created the financial planning profession. While many look to the 1983 introduction of lump sum taxes as the watershed event that was the genesis of the financial planning industry, historians will refer to this year’s budget as the tsunami that wiped away many of the indifferent practitioners and practices of the past.
The new super rules, as they are presently articulated, provide a host of opportunities for both retirees and their families that make the regulatory arbitrages now available simply pale into insignificance by comparison.
In the broadest terms, super is now the anointed wealth management vehicle for all those Australians prepared to suspend their cynicism 2. The pairing of super with the tax and social security assets and incomes test exemptions for the family home produces a coupling that dwarfs all other forms of investments for sheltered returns.
And now, with the ability to access equity in the family home through first and second generation home equity release offerings, income generation has never been easier.
And on it drools. Paul Keating said about growing old “there’s nothing good about it”. Well there is now.
Doesn’t this highlight the stupidity of a high tax regime then. You have to hire a tax geek to figure out the best way to lower you tax rate down to 15% or zero in your example?
Doesn’t this simply show that a flat tax no duductions would be a superior and less costl way of dealing with things. The system is a joke and this shows it up.
“Paul Keating said about growing old ‘there’s nothing good about it’. Well there is now.”
Notwithstanding all my so-called tax advantages I’ll swap being my age for being your age anytime Nicholas.
Yes, I’d do the same further down the ladder WIIS.
this assumes Nicholas that the government doesn’t change the system again.
given the aging of the population I can’t see the present system of not taxing superannuation benefits at all being sustainable.
But I’ll be OK, Homer. I reckon any future changes will be grandfathered. (Humour intended).
How long will the new tax regime for super last? I quote “It is probably an unintended Budget consequence, but there is a high likelihood of a meaningful reduction to the tax base as many older and professionally advised Australians take advantage of the intergenerational opportunities in SMSFs to reduce the overall tax payable by themselves and their families.”