Latest / The Money Puzzle / Is becoming a Sophisticated Investor in your best interest?

Transcript

Is becoming a Sophisticated Investor in your best interest? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:12
Speaker 1: James Kirkby. Welcome aboard everybody. Would you like to be
0:16
Speaker 1: a sophisticated investor? It sounds good, doesn't it, And you'd
0:20
Speaker 1: get access to special investments that the everyday investor can access.
0:26
Speaker 1: And I mean I would think if you're an aspirational investor,
0:28
Speaker 1: of which I imagine most of our listeners are, you
0:31
Speaker 1: think you'd want to sign up for that and have
0:33
Speaker 1: that certificate. But I have to tell you sophisticated investor
0:38
Speaker 1: is as a status is currently under vigorous debate. Let
0:42
Speaker 1: me tell you across the market, inside the regulation sphere,
0:46
Speaker 1: and someone who's right across it and also across Division
0:51
Speaker 1: two nine to six the new super tax, which we'll
0:53
Speaker 1: talk about also in the show, is Peter Burgess. He's
0:56
Speaker 1: the CEO at the Self Managed Super Fund Association. And
1:00
Speaker 1: how are you, Peter?
1:01
Speaker 2: I'm good, Thank you, James, thank you for having me
1:03
Speaker 2: on the show.
1:04
Speaker 1: Lovely to have you on the show, and I'm amazed
1:06
Speaker 1: that it's actually your debut considering how often we talk,
1:10
Speaker 1: but great to have you on. Now, Sophisticated Investors. Here's
1:13
Speaker 1: the thing so when I tell people about this, it's
1:17
Speaker 1: only natural that they immediately want to join this club
1:24
Speaker 1: that they hadn't heard of. Right, so people understand there
1:28
Speaker 1: is a status, a legal status called sophisticated investor, and
1:33
Speaker 1: if it was introduced a long time ago, and the
1:36
Speaker 1: idea was it was for exotic investments basically that were
1:40
Speaker 1: risk quite risky and couldn't come under conventional consumer protection
1:45
Speaker 1: and people were allowed access out if they signed a certificate.
1:49
Speaker 1: That was how it worked. The issue these days is,
1:52
Speaker 1: I won't say every time Dick and Harry has one,
1:55
Speaker 1: but an awful lot of people are entitled to them.
1:58
Speaker 1: Could you explain what it is? And first of all,
2:00
Speaker 1: it's become yes.
2:02
Speaker 2: Now I think it, James, and you're right, this has
2:03
Speaker 2: been here for over two decades now. There was a
2:06
Speaker 2: change is made to the legislation back in two thousand
2:09
Speaker 2: and one to distinguish between what they call a retail
2:13
Speaker 2: investor and a wholesale investor. So the legislation makes that distinction.
2:18
Speaker 2: If you meet the criteria to be treated as a
2:22
Speaker 2: wholesale investor, it means that you have access to certain
2:26
Speaker 2: types of investments that may not be available to retail investors,
2:29
Speaker 2: and some of these investments, as you point out, could
2:32
Speaker 2: be higher risk type investments, but they also offer the
2:35
Speaker 2: opportunity for achieving larger returns. Now, in order to meet
2:40
Speaker 2: that criteria of being a wholesale investor, there are certain tests,
2:44
Speaker 2: and you only have to meet one of these tests
2:46
Speaker 2: in order to be classified as a whole stal investor.
2:48
Speaker 2: So there's a test around your net wealth. You need
2:52
Speaker 2: to have at least two point five million dollars in
2:55
Speaker 2: net assets. That's one of the tests. One of the
2:57
Speaker 2: other tests or income, if you have received two hundred
3:00
Speaker 2: and fifty thousand dollars or more in income over the
3:02
Speaker 2: two previous years, will then you satisfy the test. And
3:05
Speaker 2: the last one is where your investing amounts in excess
3:08
Speaker 2: of five hundred thousand dollars in one go into the product,
3:11
Speaker 2: then you meet that test. So you only have to
3:13
Speaker 2: meet one of those in order to be able to
3:14
Speaker 2: be classified as a wholesale investor.
3:17
Speaker 1: An accountant to assigned a certificate and you have that
3:19
Speaker 1: classification and then the product seller as such can deal
3:23
Speaker 1: with you.
3:24
Speaker 2: That's right, So you need to be signed off a
3:26
Speaker 2: recognized accountant.
3:28
Speaker 1: And nothing to do with your and we might come
3:31
Speaker 1: back to this, but nothing whatsoever to do with your
3:34
Speaker 1: experience or competence. You could be a very bad investor,
3:41
Speaker 1: but if you have the money, you qualify as sophisticated.
3:44
Speaker 1: But you might not be sophisticated per se.
3:47
Speaker 2: That's right. It's based on those income and assets tests.
3:50
Speaker 2: As I see, there is another test called the sophisticated
3:53
Speaker 2: investor test. Now that's where the licensee, like a financial
3:57
Speaker 2: planning licensee, makes a judgment call based on the experience
4:00
Speaker 2: of the investor that they are sophisticated and that they
4:03
Speaker 2: need to ensure that the investor is aware of that,
4:06
Speaker 2: and the investor has acknowledged that they are being treated
4:09
Speaker 2: as a sophisticated investor. So that's an additional test in
4:12
Speaker 2: there as well. So there are a number of tests
4:15
Speaker 2: that apply. Of course, all the controversy, I guess, all
4:19
Speaker 2: the debate around these tests have been that they haven't
4:22
Speaker 2: changed since they were first introduced back in two thousand
4:25
Speaker 2: and one. So those thresholds that I talked about, the
4:28
Speaker 2: two and a half million dollars in net wealth and
4:30
Speaker 2: the two hundred and fifty thousand dollars income over the
4:34
Speaker 2: last two years, those thresholds have not changed in over
4:36
Speaker 2: twenty years, so that was.
4:38
Speaker 1: A lot of money and two or one right, So
4:40
Speaker 1: basically there was I don't know, let's pick a number,
4:43
Speaker 1: fifty thousand people who could qualify then and there was
4:46
Speaker 1: a lot of money. These days, well, I was just
4:49
Speaker 1: reading about how construction workers are earning two fifty, mine
4:53
Speaker 1: workers are earning two fifty and they're good salaries, but
4:56
Speaker 1: they're actually not spectacular compared to see investment banking or whatever. Similarly,
5:00
Speaker 1: two and a half million was a lot of money.
5:02
Speaker 1: Then it's just the price of two houses now in
5:05
Speaker 1: Sydney and Melbourne and so Peter, the issue is then,
5:10
Speaker 1: I think it was the A and you came out
5:11
Speaker 1: and said there's three million people will qualify or as
5:14
Speaker 1: we stand today, and that proportion is going to go
5:18
Speaker 1: through the roof in the future. The point I'm making
5:21
Speaker 1: is so it's not so much an exclusive club and anymore.
5:25
Speaker 1: The other thing, obviously is that it's strictly on dollars. Now,
5:28
Speaker 1: what are the criticisms? And I want to put this
5:30
Speaker 1: on for our listeners. Just by the way, folks, I
5:33
Speaker 1: do not want to you not to consider being a
5:35
Speaker 1: FA sophisticated investor absolutely, why not. You should go for
5:40
Speaker 1: everything you can, but I think we should make it
5:42
Speaker 1: clear that what is the price of it, Peter in
5:45
Speaker 1: terms of consumer protection, which isn't always mentioned in the
5:49
Speaker 1: coverage of this.
5:50
Speaker 2: Yeah, that's right. Certainly it gives you access to board
5:54
Speaker 2: a round's investment options. But the downside is that you
5:57
Speaker 2: don't have the same level of protection consumer protection that
6:01
Speaker 2: you would have if you're being treated as a retail investor. So,
6:05
Speaker 2: for example, the financial advisor that may be giving advice
6:08
Speaker 2: about the product is not bound by the requirement to
6:11
Speaker 2: act in your best interest when giving that advice. They
6:13
Speaker 2: don't need to issue you with what we call a
6:16
Speaker 2: statement of advice or a product disclosure statement, So there's
6:20
Speaker 2: much more relaxed disclosure rules around these things if you're
6:23
Speaker 2: treated as a wholesale investor. But also you don't have
6:26
Speaker 2: access to the complaints body so aftern we call it
6:29
Speaker 2: the use join Financial Complaints Authority. And also you don't
6:32
Speaker 2: have access to the advisor's internal dispute mechanism as well,
6:35
Speaker 2: So if you're not happy with the advice you received,
6:39
Speaker 2: then you don't have the ability to go to those
6:41
Speaker 2: complaint bodies like you would if you were a retail investor,
6:45
Speaker 2: and it's really important.
6:46
Speaker 1: If your investment gets wiped up, you're on your own.
6:48
Speaker 1: You're on your own. You're saying the document, you've presented
6:50
Speaker 1: yourself as a sophisticator's investor, and so that's it. That's
6:55
Speaker 1: the kind of price of it, is it.
6:57
Speaker 2: That's right, you don't have access to it is a
7:00
Speaker 2: compensation like you would have if you were all.
7:02
Speaker 1: Potentially it's a bit scary that the financial advisor doesn't
7:05
Speaker 1: have to act in your best interest. That's scary because
7:08
Speaker 1: of what I'm leading to is I know because I
7:10
Speaker 1: cover financial advice very thoroughly, and we publish a survey
7:14
Speaker 1: of course every year the top one hundred and fifty
7:16
Speaker 1: financial advisors that, for the sake of efficiency and side
7:20
Speaker 1: stepping a mountain of red tape, many top advisors now
7:24
Speaker 1: just say we're wholesale only. They just say, sorry, our
7:27
Speaker 1: client book we're pretty full. You know, we just have
7:30
Speaker 1: to be efficient, so we're just taking people on who
7:33
Speaker 1: are strictly sophisticated. Are you familiar with that development.
7:38
Speaker 2: Yes, Look, there are certainly advisors out there that only
7:41
Speaker 2: give advice to wholes you know, to wholesale clients on
7:44
Speaker 2: that basis. Yes, that's true, and yeah, I think it's
7:48
Speaker 2: fair to say that there are some that provide advice
7:50
Speaker 2: to both types of clients. But absolutely there are some
7:53
Speaker 2: out there that are just focusing on wholesale clients and
7:55
Speaker 2: because of that, they don't need they're not subject for
7:58
Speaker 2: the same regulatory the supervision that others are.
8:00
Speaker 1: So, yeah, you can include your house in this.
8:05
Speaker 2: Yes, true. So the threshold that I mentioned that two
8:07
Speaker 2: and a half million dollars in net asset, you can
8:10
Speaker 2: include your house in that. And of course that's why
8:12
Speaker 2: there's so much discussion around these thresholds, because we know
8:15
Speaker 2: that house prices have significantly increased over the last two decades.
8:18
Speaker 2: So when these thresholds were first putting back in two
8:21
Speaker 2: thousand and one, housing prizes are certainly not what they
8:24
Speaker 2: are today. And you were saying before some of the figures,
8:26
Speaker 2: but you know, when these thresholds were first put in
8:29
Speaker 2: place in two thousand and one, around two percent of
8:31
Speaker 2: the adult population would classify or qualify potentially as a
8:35
Speaker 2: wholesale investor. Now it's close to twenty percent of the population,
8:38
Speaker 2: and they're forecasting by twenty forty one that you know,
8:41
Speaker 2: that percentage will be over forty percent of the adult
8:43
Speaker 2: population would actually meet the definition of a wholesale investor
8:47
Speaker 2: based on those thresholds.
8:48
Speaker 1: So it's it's gone up by ten times. Quick question,
8:51
Speaker 1: simple question in technical or academic investments work, and you
8:56
Speaker 1: would be you were previously course the tactical chiefs, you'd
9:01
Speaker 1: be right across this. A house is not seen from
9:05
Speaker 1: a textbook perspective as an investable asset. Is it a home?
9:09
Speaker 2: Not from a seal phone perspective? If you're living in it,
9:12
Speaker 2: obviously you can't hold those type of investments, and.
9:16
Speaker 1: So do you think it should be excluded.
9:20
Speaker 2: Well, it's an open question, James, as to whether the
9:22
Speaker 2: house should be included in the in that threshold. Now,
9:25
Speaker 2: there was a parliamentary inquiry that looked at this very
9:28
Speaker 2: issue as to whether these thresholds should actually be increased,
9:31
Speaker 2: and that inquiry was completed for the report came out
9:35
Speaker 2: earlier this year, and it may surprise some that they
9:38
Speaker 2: came to the conclusion that the thresholds shouldn't be changed.
9:41
Speaker 2: There were certainly plenty of submissions to that inquiry suggesting
9:44
Speaker 2: that the threshold should change because obviously it's been as
9:47
Speaker 2: we're saying it's been two decades now and they haven't changed.
9:50
Speaker 2: There are plenty of submissions suggesting that they shouldn't change.
9:53
Speaker 2: And some of the reasons that were put forward for
9:56
Speaker 2: that is that these thresholds are actually not out of
9:58
Speaker 2: step with the rest of the world. In other places
10:01
Speaker 2: around the world that they have these type of tests
10:03
Speaker 2: and our thresholds here are consistent with that. And there's
10:06
Speaker 2: an argument that as a community, we are more financially
10:09
Speaker 2: literate today than we were perhaps twenty years ago. There's
10:12
Speaker 2: access to information.
10:14
Speaker 1: I wonder, and I don't say that facetiously. I'm on
10:16
Speaker 1: the border of the Financial Literacy Foundation EXTRA and we
10:19
Speaker 1: know that the OBCD figures showed that Australia actually has
10:22
Speaker 1: to claimed in terms of financial literacy year after year internationally.
10:26
Speaker 1: So that doesn't stand up. But tell me, what did
10:29
Speaker 1: you want? What would you like to see in the
10:31
Speaker 1: investor tests? What was your what did your submission see?
10:34
Speaker 2: Well, we would like to see at least certification that
10:37
Speaker 2: individuals who have been classified as a whole sil investor
10:40
Speaker 2: absolutely are aware that they've been classified as a whole
10:44
Speaker 2: SiGe investor and that they acknowledge that, so that they
10:46
Speaker 2: understand the consequences of that. One of the problems with
10:48
Speaker 2: the current sy there's no requirement for someone who's been
10:51
Speaker 2: classified as a wholesale investor to actually acknowledge that and
10:55
Speaker 2: to fully understand the consequences have been treated as a
10:58
Speaker 2: whole stal investor. So, you know what we would like
11:00
Speaker 2: to see, and this is really a recommendation coming out
11:02
Speaker 2: of the Quality of Vice review which was undertaken a
11:04
Speaker 2: few years ago and now by Michelle Leedy, that investors
11:08
Speaker 2: should be required to acknowledge that yes to being treated
11:12
Speaker 2: as a whole tale investor, and that they are fully
11:14
Speaker 2: aware of the consequences of being treated as a whole
11:17
Speaker 2: sal investor.
11:19
Speaker 1: Okay, and what about competency in the form of knowledge
11:23
Speaker 1: as opposed to just having enough money?
11:26
Speaker 2: Yeah, look, I think you could argue that threshold and
11:29
Speaker 2: not the only thing that should be taken into consideration
11:31
Speaker 2: here when determining when there's someone's financial literate or not.
11:34
Speaker 2: And there is a place for some other types of assessments,
11:36
Speaker 2: but that could be complex as to how you introduce
11:39
Speaker 2: those type of things. But we certainly wouldn't be opposed
11:41
Speaker 2: to some other tests being applied that's based on experience
11:44
Speaker 2: similar to what we see for the sophisticated investor tests.
11:47
Speaker 2: Right now, if you're coming in through that pathway, then,
11:50
Speaker 2: as I said earlier on the licensee already has to
11:52
Speaker 2: get a declaration from you that you understand that you're
11:55
Speaker 2: being treated as a whole, stole investor and you understand
11:57
Speaker 2: the consequence.
11:58
Speaker 1: So you're to see first of all, rock bottom. You'd
12:01
Speaker 1: like to see evidence that the person knows that they
12:04
Speaker 1: think lassified, because it's pretty scary to think that they
12:06
Speaker 1: might know. Secondly, that you do some capacity for some
12:11
Speaker 1: knowledge test of some description.
12:13
Speaker 2: Is that right? Yeah, that's right?
12:15
Speaker 1: And okay, Acik, the regulator whatever came out of the
12:18
Speaker 1: parliamentary inquiry, ack the regulator, the peak regulator once it
12:22
Speaker 1: lifted to four point five million, we know that. What
12:24
Speaker 1: do you think?
12:26
Speaker 2: Yeah, Look, we were in that when we made a
12:27
Speaker 2: submission to this. We were part of a joint submission
12:29
Speaker 2: with a number of other associations, and we were in
12:31
Speaker 2: the camp. I was saying, well, yes, it makes sense
12:33
Speaker 2: that the threshold should increase, Acik. We're proposing an increase,
12:37
Speaker 2: I think in line with inflation. So if it had
12:39
Speaker 2: been increased in line with inflation, sits two thousand and one,
12:41
Speaker 2: we would be out around that four point six million
12:44
Speaker 2: dollars today and so that makes sense to us. So
12:46
Speaker 2: we were certainly in the camp of yes, increasing those thresholds, and.
12:49
Speaker 1: Did you want it indexed as well?
12:51
Speaker 2: Yes, we think there is grounds for indexation. It should
12:54
Speaker 2: be a certain forget threshold. We believe it's probe to
12:57
Speaker 2: have indexation in there as well. But you know, if
12:59
Speaker 2: you go to incre to reach these thresholds, it rises questions,
13:02
Speaker 2: Ryan grain fathering, what do we do with all these
13:03
Speaker 2: people that have been in there now and there's a
13:06
Speaker 2: lot to work through. You are going to increase the
13:08
Speaker 2: rest thresholds.
13:11
Speaker 1: Okay, Interesting about the indexing, which is a most perfect
13:15
Speaker 1: segue to what I want to talk to you about next,
13:18
Speaker 1: which is the super tax, which of course you are
13:20
Speaker 1: in the vanguard of that debate representing self managed super
13:24
Speaker 1: fund investors who were very much in the frame, if
13:27
Speaker 1: not in the target, of the measure. We'll be back
13:30
Speaker 1: in a moment and we're going to catch up on
13:32
Speaker 1: exactly what's going on with the new supertax. Hello, welcome
13:44
Speaker 1: back to The Australian's Money Puzzle podcast. I'm James Kirby
13:46
Speaker 1: talking to Peter Burgess of the Self Managed Super Funds Association,
13:50
Speaker 1: the CEO and someone who is in the thick of it.
13:53
Speaker 1: Let me tell you about the new supertax. Okay, how
13:56
Speaker 1: do I do this? How about I say to you, Peter,
13:59
Speaker 1: this is what I think is going on with the
14:01
Speaker 1: new supertax. It is technically has happened.
14:06
Speaker 2: It's a law.
14:07
Speaker 1: It adds fifteen percent tax on earnings above three million
14:12
Speaker 1: and it is based on realized gains. It started on
14:17
Speaker 1: July one, being roughly seven weeks ago. However, it hasn't
14:21
Speaker 1: passed parliament yet. That's all I know.
14:24
Speaker 2: What do you know?
14:27
Speaker 1: That's why ally of that it hasn't been passed. It's
14:32
Speaker 1: not even on the list as I understand. But what
14:34
Speaker 1: do you understand?
14:36
Speaker 2: Yes, there's been no sign of the legislation being reintroduced
14:39
Speaker 2: into parliament because of course it was introduced into the
14:41
Speaker 2: previous parliament but didn't pass prior to the election being
14:45
Speaker 2: called to it lapsed and we haven't seen it reintroduced
14:47
Speaker 2: into the new parliament yet. Now the Treasurer has made
14:50
Speaker 2: it very clear that he intends to proceed with this measure,
14:53
Speaker 2: so we are expecting to see this legislation introduced into Parliament,
14:57
Speaker 2: possibly in the next sitting, which will be at the
14:59
Speaker 2: end of October. Now, at this point in time, the
15:03
Speaker 2: government is saying that they want this to apply from
15:05
Speaker 2: one July twenty twenty five, which was the There has
15:08
Speaker 2: always been the start date for this particular measure, which
15:11
Speaker 2: you know, if it's not passed until late October, we're
15:14
Speaker 2: well into this financial year and that's going to be
15:16
Speaker 2: backdated to the first July twenty twenty five. We have
15:20
Speaker 2: to take the Treasure on face value that he is
15:22
Speaker 2: certainly keen to proceed with this. We think it is
15:25
Speaker 2: likely to happen. I think what the debate right now
15:28
Speaker 2: is all about is what should that start date be. Now.
15:31
Speaker 2: In our view, it's inappropriate, we think, and unfair for
15:35
Speaker 2: this tax to be backdated to the first of July
15:37
Speaker 2: twenty twenty five. What it means, of course, is that
15:41
Speaker 2: people will won't have a lot of time to make
15:43
Speaker 2: adjustments to their financial affairs for this tax, because what
15:48
Speaker 2: we call the first test time, which is thirty June
15:51
Speaker 2: twenty twenty six, assuming it does start from one July
15:53
Speaker 2: twenty twenty five, we've got our first test time Now
15:56
Speaker 2: that's the first date in which people will be assessed
15:59
Speaker 2: against the three minute, not a threshold they're collecting.
16:01
Speaker 1: Basically, they're collecting tax revenue from that date looking back
16:06
Speaker 1: over the previous twelve months.
16:07
Speaker 2: Is that if you're over three million dollars at thirty
16:10
Speaker 2: June twenty twenty six, well then you will pay Division
16:13
Speaker 2: two nine to six tax for that for the twenty
16:16
Speaker 2: five twenty six financial year.
16:17
Speaker 1: Now, what is your sort of rough bottom demand here?
16:21
Speaker 2: Well, we've opposed this tax from the outset. I should
16:24
Speaker 2: say that, you know, I'm yet to speak to one
16:26
Speaker 2: of our members yet that disagrees that, you know, tax
16:29
Speaker 2: concessions for those with excessively large superheroation balances shouldn't be
16:33
Speaker 2: reduced in some way. It's the design of this tax
16:36
Speaker 2: though that everyone is against. It's taxing the unrealized capital
16:42
Speaker 2: gains is not the solution here. There are other ways
16:44
Speaker 2: in which we can go about reducing tax concessions for
16:46
Speaker 2: people that have very large supernoation balances. This is not
16:50
Speaker 2: the solution taxing people on an unrealized capital gain. So,
16:54
Speaker 2: you know, we have put forward different ideas to government.
16:56
Speaker 2: We've put forward amendments to the existing legislation to make it.
17:00
Speaker 2: If we're going to have a tax on earnings like this,
17:03
Speaker 2: then it has to be based on what we call
17:05
Speaker 2: actual tax bill ownings, because as soon as you move
17:08
Speaker 2: away from that, then you are taxing people and unrealized
17:11
Speaker 2: capital gains. And so we've been trying to convince the
17:14
Speaker 2: government that they need to make amendments to this legislation
17:17
Speaker 2: to get it back to actual tax will income. I think,
17:20
Speaker 2: as I said, we will see this legislation introduced. I
17:23
Speaker 2: expect the Government will be very keen to get this
17:26
Speaker 2: through quickly, so they'll need the Greens support, and not
17:29
Speaker 2: only to support the bill, but they'll also need the
17:32
Speaker 2: Greens we think, to support what we call a guillotine motion,
17:35
Speaker 2: because I think the government will be keen to bypass
17:37
Speaker 2: the normal debate phase in Parliament and also committee stage
17:41
Speaker 2: of this, and they want to go to a vote
17:43
Speaker 2: and they'll need.
17:44
Speaker 1: The Gun and then do a trade off. I want
17:46
Speaker 1: to do this. What's your worst case scenario that the
17:48
Speaker 1: Greens get their way and the whole thing goes through
17:51
Speaker 1: as planned, except that Kapp is two million instead of three.
17:55
Speaker 1: What's your worst case scenario?
17:57
Speaker 2: Yeah, look, the worst cast scenario is that it does
17:59
Speaker 2: go through with lower threshold, So it goes through without changes,
18:02
Speaker 2: So they do tax unrealized capital gains in the threshold
18:05
Speaker 2: applies for two million dollars. Now, you know, I would
18:08
Speaker 2: be amazed if the government agrees to reduce the thresholder
18:11
Speaker 2: two million dollars. It would mean even more people are
18:13
Speaker 2: going to be infected by the taxing underrealized capital gains.
18:16
Speaker 2: And of course they are cropping a fever of heat
18:18
Speaker 2: about that. So I'd be very surprised if agrees to
18:21
Speaker 2: drop it to two million dollars.
18:22
Speaker 1: And your best case that they push it forward a
18:25
Speaker 1: year perhaps and do some amendments, and what might those
18:28
Speaker 1: amendments feasibly be.
18:30
Speaker 2: Yeah, So look, our best case here would be we
18:32
Speaker 2: want this tax to ferd by at least twelve months.
18:34
Speaker 2: We think people need more time to make adjustments to
18:37
Speaker 2: their financial affairs, and Treasury acknowledge this when the legislation
18:40
Speaker 2: was first announced, that people would need a long lead
18:43
Speaker 2: in time in order to adjust to this tax. Now,
18:45
Speaker 2: in some cases it requires people to be selling property
18:49
Speaker 2: out of their self many superfund That takes time. So
18:51
Speaker 2: there was an ignowledgment back then that at least twelve
18:53
Speaker 2: months now, we're not going to have that if they
18:56
Speaker 2: push forward to the star date of one to low
18:58
Speaker 2: twenty five. So yes, we want to see pherrel. We
19:00
Speaker 2: think that we'll give the government an opportunity to sit
19:03
Speaker 2: down with the industry and talk through some other ways
19:07
Speaker 2: to go about this and hopefully address the taxing unrealized
19:09
Speaker 2: capital gains. We believe there are ways amendments that can
19:13
Speaker 2: be made this legislation to get it back to using
19:15
Speaker 2: actual taxble earnings and if we get back to that,
19:18
Speaker 2: then we're not taxing unrealized gains. And that's the big
19:21
Speaker 2: problem with this tax. Big problem the designer this tax
19:23
Speaker 2: that we've been against since day one, and we'll keep
19:25
Speaker 2: advocating against it as long as we can.
19:30
Speaker 1: Right one last thing. If they're pushing forward a year,
19:34
Speaker 1: there are revenue estimates. Obviously in the budget I think
19:36
Speaker 1: I saw our political team said it would cost three
19:39
Speaker 1: hundred million in last revenue. So that would wear against
19:45
Speaker 1: your hoops.
19:46
Speaker 2: Well well pit potentially, yes, but in the scheme of things,
19:49
Speaker 2: I'd like to think that's a rounding error, and then
19:51
Speaker 2: there is scope for the government to sit down with
19:53
Speaker 2: the industry. Gives more time, as I said, to consult
19:55
Speaker 2: on some of the design features of this tax which
19:57
Speaker 2: have been non negotiable today.
20:00
Speaker 1: Okay, very good, All right, well folks, there you are.
20:02
Speaker 1: That's the latest on the new super tax. It's fascinating
20:08
Speaker 1: that it isn't even pasted in Parliament that was supposed
20:12
Speaker 1: to have started seven weeks ago. It's also fascinating, as
20:15
Speaker 1: Peter said, that they may do what they call it guillotine,
20:18
Speaker 1: and what that means is that basically, one afternoon, out
20:22
Speaker 1: of the blue, they say it's going through now and
20:24
Speaker 1: you've got about an hour to fix it, and there's
20:26
Speaker 1: a deal done, a backroom deal. Basically they say to
20:28
Speaker 1: the Green something entirely different, utterly different, like they'll put
20:32
Speaker 1: three windmills in somewhere else, or nothing to do with
20:34
Speaker 1: super whatsoever. It's called a guillotine. They package it all
20:37
Speaker 1: up and they go bang, it's done. And that obviously
20:39
Speaker 1: is the distinct risk here, I would think. All right,
20:41
Speaker 1: back in the moment, I've got some good questions ready
20:43
Speaker 1: for Peter. Hello and welcome back to The Australian's Money
20:54
Speaker 1: Puzzle podcast. I'm with Peter Burgess. He's the chief executive
20:57
Speaker 1: officer of the self managed super funds souciation, which represents,
21:01
Speaker 1: as you may well know, something like how many people now, Peter,
21:05
Speaker 1: one point three or four million?
21:08
Speaker 2: Oh my, we're two million trustees, six hundred and forty
21:11
Speaker 2: thousand odd self many super funds.
21:13
Speaker 1: Okay, yeah, yes, one point two million people in the
21:16
Speaker 1: self man super funds now, which is good, good to see,
21:20
Speaker 1: and it's a marvelous way for people who do the
21:24
Speaker 1: work and do the homework to invest. And it's something
21:27
Speaker 1: that yes, I am enthusiastic about because I think for
21:30
Speaker 1: someone who was an active investor, it does open up
21:32
Speaker 1: all sorts of opportunities if you're willing to do the
21:35
Speaker 1: work and take the responsibility. All right, now, a first
21:38
Speaker 1: piece of correspondence is this is a piece of correspondence
21:41
Speaker 1: that came in. The person wanted to keep their name,
21:44
Speaker 1: didn't want their name used at all, first name or
21:46
Speaker 1: second name, so I'll have to stick with that. But
21:48
Speaker 1: here it is your last podcast on financial literacy as
21:52
Speaker 1: the ultimate defense against scandals. Particularly resonated with me. Last
21:56
Speaker 1: year we had a family member involved in a scandal.
21:58
Speaker 1: They lost a lot of money. Family was in a
22:00
Speaker 1: state of shock. We try to report or engaged with
22:05
Speaker 1: the bank this person's account was with, but they showed
22:08
Speaker 1: no interest blaming the victim. I was surprised, as with
22:12
Speaker 1: the high level of automation based on computer processing we
22:16
Speaker 1: currently have, someone should have been able to pick up
22:18
Speaker 1: the sudden increase in activity with this one account, but
22:21
Speaker 1: no one did. We tried reporting also to the local police,
22:24
Speaker 1: again no response. We have reported it to scam Watch.
22:29
Speaker 1: We've moved on with life, but we feel as if
22:31
Speaker 1: the banks are only there as a big ATM, not
22:35
Speaker 1: to help safeguard our livelihood. That's a genuine peace correspondence
22:40
Speaker 1: from someone who was scammed, and I recommend you do
22:43
Speaker 1: listen to last week's Peace podcast with doctor Tracy West
22:47
Speaker 1: of the Extra Foundation, who was the education manager there
22:50
Speaker 1: about basically, we can do a lot of regulation, you
22:53
Speaker 1: can have piles of regulation, but there's nothing strong I
22:55
Speaker 1: think as self defense in terms of financially financially interested
23:01
Speaker 1: getting up to speed to yourself or getting your kids
23:03
Speaker 1: up to speed in school, which is something we were
23:05
Speaker 1: driving at in that podcast. All right, Don asks, well,
23:09
Speaker 1: the fifteen percent supertax apply to both accumulation or pension
23:15
Speaker 1: balances of a three million, and will it include pension withdraws, so.
23:21
Speaker 2: It will include both your accumulation assets as well as
23:25
Speaker 2: your pension So the way it works based on your
23:28
Speaker 2: total superbalance and the movement in your total superbalance from
23:31
Speaker 2: the start of the financial year to the end. So
23:34
Speaker 2: your total superbalance includes money you've got in the accumulation
23:38
Speaker 2: phase as well as money you have in the pension phase,
23:41
Speaker 2: so it applies to both phases. In terms of pension payments,
23:46
Speaker 2: any pension payment made during the course of the income
23:49
Speaker 2: year will be added back to your balance for the
23:52
Speaker 2: purpose of calculating your earnings for the years. So there
23:56
Speaker 2: is a formula they use to calculate earnings under the
23:59
Speaker 2: Vision two nine and six. It is based on the
24:02
Speaker 2: movement of your balance from the start to the end.
24:04
Speaker 2: But they do make adjustments for things like withdrawals and
24:07
Speaker 2: contributions that you've made made during the course of the
24:09
Speaker 2: year too.
24:10
Speaker 1: And show And that's just a conventional accounting, isn't it.
24:13
Speaker 1: I mean that's not as such. I mean you would
24:15
Speaker 1: this is what you would naturally do, that's right.
24:18
Speaker 2: They're doing it to ensure that the earnings figure is
24:20
Speaker 2: not overstated or understated by the fact that your contributions
24:24
Speaker 2: will will take the withdrawals out.
24:25
Speaker 1: And just one last thing on that. So the fifteen
24:30
Speaker 1: percent the new tax, it applies on accumulation and pensions.
24:34
Speaker 1: So if you haven't retired, let's say you're fifty and
24:37
Speaker 1: you cross the three million, you're you're in the tax
24:40
Speaker 1: net from then on, even though you haven't retired.
24:42
Speaker 2: Is that right, Well, that's right. This tax will apply
24:45
Speaker 2: a gallus when you're retired or not. It's purely based
24:48
Speaker 2: on your So if you have a balance and excess
24:51
Speaker 2: of three million dollars, then you will be subject to
24:53
Speaker 2: a division two nine six on the earnings portion above
24:56
Speaker 2: three million dollars. So you know, division does not apply
24:59
Speaker 2: to your whole balance, the earnings of all of your balance.
25:01
Speaker 2: It's just that fortunate above three million dollars.
25:03
Speaker 1: Yeah, the portion above, And that's an important point. It's
25:06
Speaker 1: just to recap folks, sits on earnings above three million.
25:10
Speaker 2: And it's on your One of the other misconceptions here,
25:13
Speaker 2: it's based on the balance of your self many superfund.
25:16
Speaker 2: But it's not based on your combined balance. It's your
25:18
Speaker 2: individual superheroation balance that you used to determine whether you're
25:22
Speaker 2: over that's three million dollars per capita.
25:25
Speaker 1: So if there's two in the fund, it's divided by
25:28
Speaker 1: two of the six in the fund that's divided by six.
25:30
Speaker 2: Is that it? Yeah, So you could have a situation
25:33
Speaker 2: where the total fund balance is five million dollars, but
25:36
Speaker 2: the rise of two min two members, both who have
25:39
Speaker 2: two point five million dollars, they don't pay division two
25:42
Speaker 2: one six because they're not own neither of them over
25:44
Speaker 2: that's three million dollars threshold.
25:46
Speaker 1: Terrific. Great, great to have you on and great to
25:48
Speaker 1: have you answering the questions. A perfectly place to do so.
25:51
Speaker 1: That was Peter Burgess of the Self Managed Super Funds
25:55
Speaker 1: Association the See You're great to have him on the show.
25:57
Speaker 1: Thanks Peter, Thanks James, and keep the emails rolling the
26:01
Speaker 1: money puzzle at the Australian dot com dot au. Talk
26:05
Speaker 1: to you soon.