Reaching the Max: Is a Cap on Super Funds Imminent?

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Speculation is rampant that a cap for superannuation accounts will be declared in the upcoming budget announcement on May 2023.

As a new year starts, rumours about reforms to the higher tiers of superannuation are filling the air.

In particular, capping super accounts for individuals has become a central concept due to the recent surge in large super balances being used as an advantageous tax loophole and even as a tool to transfer wealth across generations.

Last summer, news broke that at least 32 self-managed super funds (SMSFs) have over $100 million each. This prompted numerous calls to impose restrictions on the total amount you can stash in a super fund and even consider instituting an absolute limit on how much an individual can hold inside their superannuation account.

“No limit on super funds – for now,” was the official message from Treasury in July 2020. But now, three years on, it looks like this could soon change as various stakeholders continue to voice their concerns.

While the amount an individual can transfer into their superannuation pension is capped at $1.7 million (an amount that will be indexed annually), there are no restrictions on how much money you can keep in your fund while it’s still accumulating funds.

By having the liberty to decide whether or not you choose to transform your super account into a pension, substantial amounts of money can remain in its tax-advantaged state and could save thousands annually on taxes as well as millions throughout the investment’s lifespan.

With such remarkable tax savings, you can pass on the benefits of a self-managed scheme directly to future generations. Plus, legacies at the time of death can either be free from taxes or taxed at a meagre rate.

“No one should be allowed to accumulate superannuation of such a size that it distorts our current tax system,” said the treasurer, who promised to take further steps if necessary.

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