When do I need to start worrying about the $3m super tax? (2024)

I have $5 million in my super fund and I’m most concerned about the tax on unrealised capital gains that will occur if the balance is over $3 million when the changes start. I’m getting confusing advice – is it the balance on June 30, 2025, or on June 30, 2026?

As you say, it’s most confusing, and the calculations in the examples I have seen are more confusing. But superannuation guru Meg Heffron tells me June 30, 2026, is the critical date. You could start the 2025/26 financial year with a balance of $5 million, but provided it was under $3 million on June 30, 2026, you would not suffer the penalty tax.

Just be aware, when you are rearranging investments in your fund and making withdrawals, that usually only listed investments can be quickly redeemed. Some managed funds require 90 days’ notice, and if property is involved, it could take a while to sell and settle.

I have read from several sources that if one member of a couple is below pension age, their super balance will not be counted as an asset and therefore not affect the other partner’s pension. However, if this super is converted to a pension account, it will be counted. My question, and I have received conflicting advice on this, is: if only a portion of the total balance is converted to an income stream, will the balance that remains in the accumulation phase be counted as well? Perhaps I should clarify that our super company allows its members to create a pension account with a portion of their total balance and maintain the remainder in the accumulation phase.

The situation is clear. If you have money in both pension mode and accumulation mode, you have two separate superannuation accounts – only the one in pension mode will count until you reach pensionable age.

We are pensioners – we have a $400,000 loan against our home and $30,000 in an offset account against that loan. Does Centrelink regard $30,000 as an asset?

Any monies in an offset account are counted towards the assets test and are deemed for income test purposes. Any monies in a redraw account are not assessable.

I have always wondered, given the rise in popularity with exchange traded funds (ETF), what would be the unforeseen black-swan event? It always seems there is an event like fraud or financial meltdown that has unforeseen impacts. So, is there something in terms of risk with an index fund where one might wish they’d held 20 to 30 individual stocks over, instead? Or is the nature of index fund regulations such that the manager can never get their hands on the money or assets, there’s no leverage instruments like options that could cause catastrophic losses? Does an ETF have the same risk profile as owning shares in the individual companies that comprise the ETF?

I put your question to Vanguard, the largest manager of index funds in the world. They pointed out that suitable examples of a black-swan event would be the GFC or the dotcom bust or, in more recent times, the COVID-induced sharemarket dip.

ETFs, along with most other securities on the sharemarket, experienced significant falls, resulting in negative returns for most investors. Using the dotcom bust as a case in point, while the Nasdaq Composite Index returned to positive territory after a period of time, many of the companies listed ceased trading.

Loading

In this case, an investor who invested in the top 100 companies on the Index was more likely to have been better off than one who picked 20-odd individual securities in that mix.

Similarly, securities that were turbocharged by the pandemic might have outperformed in 2020 and 2021, but have they continued to do so? That said, it is important to note that not all ETFs are broadly diversified, and those built on a narrow universe of securities are perhaps better used as a satellite holding, rather than a core of the portfolio.

When it comes to index funds and ownership, it depends on the fund manager’s model – Vanguard uses the custodial arrangement where investments are held for safekeeping on investors’ behalf by an independent third-party custodian (in their case, J. P. Morgan), similar to how superannuation funds operate.

Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circ*mstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.