[+] Super Tax to Shift Dial on Property Investment

A week after the soft launch of a superannuation reboot, Treasurer Jim Chalmers has moved to hose down speculation and confirm the doubling of taxation to 30 per cent for those with more than $3 million in super. Chalmers says the change would affect 80,000 people and deliver $2 billion a year when operational. He has, however, suggested that the tax cap rate would not come into effect until 2025, after the next federal election. But the flow-on effect for property investment is yet to be fully realised as real estate investment funds brace for a flurry of activity. Whether it is inflows or outflows remains to be seen. The Australian Prudential Regulation Authority has already warned superannuation funds about heavy exposure to illiquid assets, such as property. But that warning has been underlined in the past week. Incoming Self Managed Super Fund Association president Peter Burgess is stepping into his new role at a critical time and says the phone has been ringing off the hook. “This is our moment it would seem,” he says. Burgess says property makes up a significant part of many self managed super funds investment portfolios with commercial acquisition and leaseback a popular strategy. There are more than a million self-managed super funds in Australia with around $76 billion invested in commercial properties and $42 billion in residential, according to Burgess. “If it’s a hard cap where any amount above a cap has to come out of super that could create some chaos. There will be some self-managed super funds who will have to sell assets to bring down their savings,” he says. “But it seems to be a soft cap, which would mean you will be able to have the money in the fund but it would be taxed at a higher rate. “So for some that may not necessarily mean they will have to sell assets. But they will need cash flow in order to pay their tax bills. They will need to have more liquidity in the fund.” ▲ Australian Treasurer Jim Chalmers says the new superannation tax of 30 per cent would affect 0.05 per cent of the population and deliver $2 billion per annum. Burgess says this could have a direct impact on the types of assets investors pursue in this market at a time when rental vacancy and supply are at their lowest in decades and investors are relatively inactive in the market. Colliers national director of residential real estate Blake Schulze says investors will be reconsidering their asset exposure and whether it will provide cash flow to help fund tax bills through super funds. “What we’ve seen over the past two years is investors chasing capital growth,” Schulze says. “We’re unlikely to see capital growth this year so investors are going to start chasing yield driving assets. “I think once we get some stabilisation in interest rates we are going to see an uptick of investors in the market, it will give people confidence.” Burgess says his association has lobbied for a tax increase of no greater than 15 per cent. He says members would be better served putting their money elsewhere if the tax rate is in excess of 30 per cent. “You can’t have a hard cap, it would be too disruptive,” he says. “The point we’re making is that we’ve already got quite a complex system, and you’re going to make it even more complicated. “This is very much a legacy that dates back to 2007 when we didn’t have a cap on contributions. We already have caps in place, we need to give them time to wash through.” Self-managed super funds are some of the most agile investors in Australia and could help to bolster the rental pool during the current housing affordability crisis. Recent data released by the Federal government shows tax breaks on superannuation contributions and earnings will cost $48.2 billion this financial year. Australians over the age of 63 will be able to remove their money from superannuation and reinvest it elsewhere before the new taxation changes are introduced, which could create an opportunity for real estate investment trusts and developers looking to capture investor activity. Federal treasurer Jim Chalmers says the tax rate would not be indexed and the government would look to include defined benefit payments in the new rules. “My intention is not to index it because we need to make superannuation more sustainable over time,” he said. “We take our responsibilities seriously. This is about responsible economic management. We think we have struck the right balance.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Super Tax to Shift Dial on Property Investment

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