Latest news with #TheAustralianBusinessNetwork
The Australian
29-07-2025
- Business
- The Australian
The strategies Australians are using to avoid Jim Chalmers' new super tax
The Australian Business Network While the federal government hopes to add $2.3bn per year to its coffers from the incoming super tax, savvy Australians are preparing to implement strategies via self managed super funds (SMSFs) to circumvent its impact. It may leave the government well short of its $40bn collection target over the next decade. When federal parliament resumes later this month Labor will welcome three extra senators, boosting their numbers to 29. And with 10 green senators and a further 10 crossbenchers, the government will have multiple pathways to get the required 39 votes needed to pass the contentious Div 296 superannuation tax on super balances above $3m. With the commencement of this new tax on unrealised gains looking more like a case of 'when' rather than 'if', Sydney-based accountant Timothy Ricardo from Accounting Advisor Group says that the key to overcoming Div 296 tax is to bring forward family succession planning arrangements. 'Rather than wait until death to transfer wealth to the next generation, a retiree with over $3m in a self managed super fund might consider adding their children to the fund and start to build their member balance now,' Ricardo says. The way this would work is that the retiree would withdraw a tax-free lump sum from their account-based pension and gift it to the child. The child would then contribute the amount back to the SMSF as a non-concessional contribution. By utilising bring forward rules, the maximum a child could contribute to super is $360,000 in one financial year. 'For someone with $3.5m in super and two children, withdrawing two lots of $360,000 and having the children contribute it back to the SMSF, this would reduce the member balance out of the danger zone of Div 296 to $2.78m while the overall fund balance would remain at $3.5m' Ricardo says. Although the children would be in the accumulation phase and their member balance taxed at up to 15 per cent on income and gains, it sidesteps the annual taxing of unrealised capital gains under Div 296 tax. It was only in 2021 that the Morrison government increased the maximum number of SMSF members from 4 to 6, which conveniently allows more children and family members to participate in this strategy. What you need to know to beat Div 296 The first is that you must have reached a condition of release to be able to withdraw lump sum amounts from super. This usually means reaching age 60 and having retired. For people aged between 60 to 64 who are still working, a transition to retirement pension can be established and up to 10 per cent of the balance withdrawn each financial year as a pension payment. You also need to have a high level of trust that your child or family member will contribute the funds you gift them back to the SMSF rather than take the money and run. And to state the obvious, even when contributed back to the SMSF by the child, it forms part of their members balance, which may be inaccessible for decades if the child is aged in their 30's or 40's. Administratively, as each member of a SMSF must also be a trustee, the operation of the fund becomes more complex. All trustees will be required to sign off on documents such as the investment strategy review, minutes, resolutions, financial statements and tax return. The final challenge is having sufficient liquidity within the super fund to make withdrawals to give to your children. Although this may seem like a deal breaker for those with lumpy assets in the SMSF such as the 17,000 farmers with primary production land inside of SMSF, a recycling strategy can be executed which achieves the goal of transitioning super out of the higher balance parent's name into the lower balance child's name. Ricardo explains the circular nature of the strategy: 'Say a 65 year old retired farmer with a $4m farm in their SMSF only has $100,000 in the fund bank account. To build the member balance of the children, the farmer can withdraw the $100,000 cash from the fund, give it to the child who then contributes it back in the fund, replenishing the $100,000 SMSF bank account balance. This process can then be repeated over and over again until either contribution caps are reached for the child or the desired level of dilution of the parents member balance has been achieved.' It is important to remember that although much has been spoken about the new super tax and its adverse consequences for people with more than $3m in super, its wording has yet to be finalised. Labor does not have a majority in the senate and they may need to compromise with the Greens or crossbenchers, which could see amendments to the final bill. As such, the advice coming from tax, legal and financial advisors is to prepare strategies to mitigate the Div 296 tax, however keep them on ice until the final legislation is passed and comes into effect. James Gerrard is principal and director of financial planning firm Read related topics: Wealth James Gerrard Wealth Columnist
The Australian
22-04-2025
- Business
- The Australian
Gold price hits record in Asia-Pacific trading as Trump, Xi tariff war rages
The Australian Business Network After soaring almost 3 per cent on Monday, the price of spot gold rose as much as 2.3 per cent to a record high of $US3500.10 in Tuesday's Asia-Pacific trading, which was up an incredible 33 per cent in the year to date. The bigger-than-expected reciprocal tariffs announced by US President Donald Trump two weeks ago caused such sharp falls in stocks that even gold was briefly sold off in a scramble for liquidity. However, the gold price rally is back on track and has had a massive 17 per cent rise in the past two weeks. It's no coincidence that the gold price accelerated after the simultaneous sell-off in US stocks, bonds and the US dollar that occurred after the trade war was ramped up. A sell-off in risk assets like stocks driving a flight to safe havens like gold is nothing new. But with investors now demanding higher risk premiums for owning the US dollar and Treasury bonds, these traditional safe havens may not be as 'safe' as they once were, driving investors into gold. Gold could be in for a particularly strong week after Mr Trump's latest verbal attack on Federal Reserve chair Jerome Powell rekindled the 'sell America' theme. Investors dumped US stocks, bonds and the dollar as Mr Trump again called for Mr Powell to cut interest rates – while National Economic Council director Kevin Hassett on Friday said Mr Trump was considering whether or not to remove Mr Powell before his term expires. As gold continued its climb, the relative calm that emerged in Tuesday's Asia-Pacific trading may belie ongoing anxiety about the trade war and the political pressure on Mr Powell that could worsen the recent sell-off in US assets. Tariff-related concerns about the global economy are expected to combine with strong central bank and other institutional demand – including China insurance company buying – to drive gold investment demand to more than 110 per cent of mine supply during the June quarter, according to Citi. The US bank said this would be its highest level since the global financial crisis and second highest level in more than 25 years, and would likely lift prices to $US3500 per ounce over the next three months. That now looks conservative as gold hit $US3500 on Tuesday. 'We think gold is likely to be in an extremely rare physical deficit at present, meaning prices need to rise in order to get relatively price-inelastic stockholders to sell to clear the market,' Citi analyst Kenny Hu said. He said the gold bull market was likely to continue, and that tariff and geopolitical uncertainties were continuing to support emerging markets' official sector gold demand. With global – and particularly US economic growth concerns, both tariff and economic cycle related – it would increase household fear and support investment demand for gold. Still, investors would be alert to signs that the 'Trump put' remains active after Mr Trump paused the reciprocal tariffs for countries other than China two weeks ago. However, the sell-off in US stocks and bonds, and the dollar on Monday wasn't of the scale that occurred two weeks ago. Mr Trump could well be sensitive to any moves in the 'wrong' direction from here. The US S&P 500 is still down 16 per cent from its high and underperforming the MSCI All Country World index (after stripping out US stocks) by 7.7 per cent, which is its worst underperformance since April 1993. Meanwhile, the DJIA is having its worst April since 1932 when the US was in the grip of the Great Depression. The S&P 500's performance since Inauguration Day is now the worst for any president up to this point according to data going back to 1928, Bespoke Investment Group said. The 30-year bond yield is close to the 5 per cent level it hit two weeks ago just before Mr Trump announced the 90-day pause on reciprocal tariffs, the US dollar is still hitting three-year lows and the VIX remains elevated near 34 per cent versus its long-term average of about 19.5 per cent. US stock market falls have, of course, been compounded for non-US investors as the US dollar is having its worst month in 16 years. Notably, the euro/$US is up 6.2 per cent month-to-date, on track for its largest monthly gain since May 2009. 'For European and many other international investors who began the year overweight US stock markets without hedging their FX exposures – anticipating the usual correlation that if stocks fall, the US dollar will rise, April has been particularly painful,' IG market analyst Tony Sycamore said. Using the S&P 500 as a guide, these investors are suffering an 8 per cent loss on their US stock portfolio, compounded by an approximate 6.2 per cent loss if their US stock portfolio wasn't currency hedged. Former Boston Fed president Eric Rosengren succinctly captured the situation, posting on X that: 'Unless the goal is to make the US trade like a third-world country, threatening the Federal Reserve's independence only makes the US less attractive to foreign investors.' David Rogers Markets Editor David Rogers began writing about financial markets in 1987. He has worked for Standard & Poor's, Thomson Financial, BridgeNews, Tolhurst Noall, Dow Jones Newswires and The Wall Street Journal. David has extensive real-time reporting experience in economics, foreign exchange, equities, commodities and bonds.
