Hello, and welcome to the Australians Money Puzzle podcast.

I'm James Kirby.

Welcome aboard everybody.

Now.

The government's planned supertax, you would know, is going to hit property investors' hardest, of course, because unlike share investors, property owners can't quickly rearrange their finances at short notice.

But in recent days we've had reliable reports the tax is now being actively reconsidered in Canberra.

There's a chance it may be delayed or even dropped entirely.

Before the speculation became public, I spoke to Orditor Naz Randira.

She's one of the leading voices against this new tax, and I don't think anyone else has spelled out the utter debacled that's on the cards if the government goes ahead as planned.

Hey Naz, thanks for having me.

James, very happy to have you on the show.

I talked quite regularly to Nas and in fact she was one of the key people apart from you.

There are usual suspects obviously in this debate around super tax, but one of the sort of new voices that came through on super tax and what was wrong with this tax in its way of taxing on realized gains was Naswandaria, and she actually was the person, the first person in the whole economy really to point out how frank dividends, for instance, would be affected.

And then people started to really open up and say, well what else would be affected?

Well, inheritance would be affected, all sorts of things would be affected by the new super tax.

So it seems to me now, Nas that super tax, which was sort of like a big shock a year ago, that's it's established, it's going to happen.

It's going to happen as the Treasurer said it would happen, and we can take a deeper look at that in a moment.

But what do you think it's it leads to?

What is it if we see it as a stepping stone or a signal of what might come down the line, what do you think it would lead to.

Well, as a typical of an Albanesia government, spending is on the rise with no accountability.

In my view, you should expect in not so distant future and inheritance tax, possibly a reduction in abolition of fifty percent of the GSC discount on capital gains, reintroduction of the policy to abandon franking creditory funds.

And what I've been screaming about and all my fears are coming through is if allowed to get their way very soon.

I wouldn't be surprised that something you like did two ninety six will then apply to private investors and other structures outside of superannuation.

Yes, so we'll just bring it into for the listeners.

You might explain what you have always compared.

It's not so much their tax per se, but the nature of the tax.

So your theory has been that if the government gets the super tax up and running, which is called division two ninety six, then the idea or the concept of a paper gains tax is set and then they could widen they could apply that more widely.

And if they were to do that, where would be the Where do you think would it would be the first step?

I think it will actually first step would go to other structures, family trusts, private companies, private investors.

I wouldn't be surprised.

I read an article the other day and we'd said, you know, talking about these larger homes, and what stops the government from saying, oh, your residential home over three million dollars, you now start paying unrealized and given to the Greens.

They'd make that threshold to too.

It's not that you cannot collect these tax in any other form.

You know, you, if you wanted, you could just increase the tax on contributions by say, from fifteen percent to seventeen percent.

You could start taxing pensions a bit if you wanted.

But now they don't want to look at any other model.

There is a message behind it.

They want to get unrealized and it's unprecedented.

It's absolutely unprecedented.

They want to get unrealized tax into the tax regime in some form of the other and then look going here, this is what we've been doing in this structure, so why not in this structure.

Yes, so, once you've broken the taboo as such of having paper gains paper gains taxes in the system, if you can do it in super then obviously you can do it elsewhere.

That's an interesting point, you Mede about the pension access.

I would have thought that that's actually on the cards as well, because quietly, if you like, while everyone was distracted over the debate around the supertax, the government did actually lift the deeming rates, didn't they for the first time in four years?

I mean maybe that was coming anyway, or do you see it as a signal of a wider effort.

Look, you know we've My point James is we've we've had a finite population.

Yeah, to a certain extent, you can only collect that much of direct tax from a population.

The government has to look at the indirect tax regime like DSD has to look at and this tax is a finite tax to a certain extent.

So when you say this tax, the new supertax is a finite taxes because there's only so many people in ultimately in the catchment, is it correct?

And they are older Australians that have accumulated, saved all their lives, paid all their taxes and wanted to live on a comfortable retirement.

Yeah, they are the people so that, according to the government, is most impacted by this tax.

But the average Australian does not realize with the cost of living pressures, with inflation, three million dollars is never going to be enough in retirement.

And this is not even indexed.

You're talking in twenty years time.

It's not enough, is that what you mean?

That's right, that's right, It's not going to be enough.

It is absolutely not going to be enough.

And it's how this tax is designed.

It's how this tax is designed.

It's an absolute disaster.

Why don't we have round tables for public spending?

Why don't we question that?

Yes, we let's just have a round table on the nature of this tax.

So tell me as an order ser specificic, you've got a very specific point of view, as an order show in terms of it's easy for you know, it's easy for political commentators to say, oh, this tax is going to be a mess, going to be very hard to introduce.

But as an orderer, can you tell me what are the specific hurdles in introducing a new taxon on realized paper gains in super like?

What does it mean?

What will actually happen?

Like from an icing point of view, what does it mean for you?

Well, it from an ordering point of view, valuations will be the biggest problem.

Yeah, and also to see people's retirement, how do I put it nowadays?

What I see in trend I'll give you an example here, a trend on a lot of younger generations introducing and getting into cryptocurrency.

Yeah, some have done really well, some have probably not done that well.

But let's take for an example, you've invested in crypto, you have reached, for example, your three million threshold because crypto has gone off over the roof on say third dear two.

Yeah, your total superbalance has reached that threshold.

And say first week of August, the market crashes and you have to pay the tax.

You've just received a bill for this sort of paper gain on crypto.

Let's just be let's make it ridiculous.

Let's say it's tripled.

And then you've received your bill in early July and you find that actually the crypto has halved.

Yep, how are you going to pay the tax?

How?

That's what's on pre sidented?

Is it?

That's the unprecedented nature of it.

Yeah.

Ok, And that's just one of the examples, just one of the examples.

Say, for instance, you've got farmers, farmers have their farmland in there.

Yeah, you will have valuations.

This is already a very complex regime.

Super annuation is a very complex.

Yeah, you've added one more layer of complexity.

And we are still billy dallying about that.

He's not introducing it this week or next week.

He is not giving any definitive timeline to the introduction either.

Software companies have to update their softwares to be able to you know, program this calculation.

There is a whole industry of advisors accountants that will have to re educate.

And all he says, this tax has been there for two years.

It's very hard to put advice and it's very hard to put legislation into practice if you don't actually legislate and you have to give a twelve month period.

That's what he promised.

But I know what he's going to say.

You had two years, that's right, but we haven't had two years because there's no clarity.

Do you think he might Ultimately a lot of people say, look, you're all getting wound up about this.

And in the end, the government always indexes these measures, But do you think the indexing is inevitable or not.

I don't trust the government to come through with any promises.

I do not.

Even if they say i'll index it, you've already brought something which is unrealized.

It's payper it.

It does not serve the purpose.

It is a counter intuitive tax, it is regressive measure.

It's punitive.

People have not people have done the right thing by saving, they have been interested in their retirement and are not relying, and let me just get this right.

They are going to reduce the future spending on aged pensions.

If you say you will be self funded in your retirement, you should be looking at reducing your future spend on aged pensions rather than the other way.

So it's actually a counterintuitive tax.

It just doesn't apply to common logic.

And the frustration I have with this government is they seem to make this whole over the past so many years, they've made this into a divide and role kind of concept.

They are either putting the yes and nose in the place.

Now we've got the older generation and the younger generation playing one against the other, saying that it's not going to be you know, it's not going to affect that many people.

It actually is going to affect many people.

Quite prominent people say back, coming in who heads COmON Bank.

Chris Cofft, the fund manager now philanthropist, says, look, it's such trouble, why don't you just put in a hard cap that they would actually accept a hard cap more than this unrealized gains.

Let's say forget about the unrealized gains.

Just have a hard cap.

Put a number on it, three million, four million, and that's it.

And if you've more than that, take it out of the superannuation system.

What do you think of that as an alternative?

If the paper gains is such a problem, what about an alternative that removes that issue.

Look, it would work when it is for there is effectively a cap in place.

Yeah, there is effectively a cap.

There is effectively a cap.

But it's not a hard cap.

It's not a hard gap.

Yeah, it's a soft gap.

It's a soft gap.

The government is still collecting the tax.

But if it is a hard gap, you have alternatives.

And that's what I'm saying, there are better alternatives.

The hard gap could work, or you get taxed at a higher rate if you breach the hard can no problems with that, But do not bring unrealized gains into the mix, because what will happen is people that can withdraw, and that I mean people who are over the retirement age, who can withdraw over six day sixty five when you've retired, they will with for example, we draw that excess amount.

Yeah, the government is not going to collect the tax it anticipated it's going to collect.

Yeah, so what are they going to do?

What would common sense dictate?

They are going to do.

They are going to follow the trail of money into these other structures, and that is the risk that.

They follow it to family trust, et cetera.

Yes, yeah, absolutely give targeting.

I think that goes without saying that.

All right now, I want to talk to you about from being an orderer and about putting this through, how it goes through the system.

You might just outline to people what they're expected to do.

I think it would be very useful how it works a little by CGT, for instance, how you pay the tax.

It's a bill that goes to you the person.

We haven't had much of that in super either before.

How you can't claim losses, you can only carry them forward.

I think people have a lot to learn on this, so we'll do that in the second segment.

Back in the moment, Hello and welcome back to The Australian's Money Puzzle podcast.

I'm talking to Nasrandaria, and I didn't introduce it properly as usual in the first segment.

What's your operations name?

Nas?

Your company Reliance Ordering Services.

Reliance Ordering Servicing out of.

Perth, Orderiting Services out of course.

And you were previously in one of the big groups weren't you.

Who were you with before you went out on your own?

Yeah, I was with Austin Young.

Evil Riston Young.

So you are, among other things, you're dealing with these issues as both a business owner and an order, so of a highly expert view.

Just in terms of the operation of the new supertax, just to explain to listeners, as you say at the point you're making in the first segment, is that because it's not index folks, that means it doesn't allow for inflation.

That means very simply.

But three million today sounds a lot.

Three million and ten years time won't be a lot.

If you think about house prices.

For instance, million dollars is now an average house price in major cities.

If you had said that to someone ten years ago, they would have found it out landish.

So if you don't index, and there is no plan to indexes supertax, very large numbers of people get caught each year in it.

And more than that, of course, virtually everybody in the system has to be aware of it, and they will make plans around it.

And as Nas says, what they will do is they will maneuver money away from this trap.

Basic and the government won't collect the tax that they were hoping to collect, but in any event they will try.

So from a practical point of view, valuations, et cetera, that's going to be just that is just going to be a nightmare, I imagine coming down the line in practical terms.

So someone says, I've got a private company it's going nowhere.

I've had it for years, but you know on paper it's going up, but I've never made any money from it.

Or a farm We've no money, We've got very little income, but a farm is allegedly worth the expert we don't want to sell it, but we have to pay tax on it.

Is that the sort of thing you've been concerned about.

Absolutely, So we put out a publication to all our account and clients and all that saying, this tax is coming.

Yeah, you need to start preparing for this tax in terms of providing you know, comparable appraisals, valuations, making sure you've got all you've got your you know, earlier the trustees could give us the research that they would have done to come up with the value of a particular asset that they had, as long as they have given us supportable information.

Now I've told them going not worth taking that that that call.

You might as well get a professional to do the job for you every year.

If you've got assets, as you said, you know, a private company that's not been doing anything.

Look at your investments strategy, look at your asset mikes.

You know advisors will be advising.

I'm sure going.

Would you put growth assets into a fund?

That's right?

Would you buy a startup in your super fund in an SS?

Why would you?

Yeah, that's exactly.

They don't understand the why their implications on the economy.

You know, so many super funds invest in startups, right, some do brilliantly well, some don't.

But it is actually funding startups, it is funding innovators, it is helping with progress, it is helping with it's investing in health education.

So do you think people will will do less in their super funds or is it the case that there will actually be that it will crimp super funds, that people will actually be less likely to use self managed super funds Because this is the hot spot, isn't it.

This is the area where this tax is going to be largely most applicable.

Look, it's super self Let's talk about self managed superannuation funds.

The self managed superannuation funds became this popular is because of the concept of its ability to control your own savings and ability to do and invest what you believed would be good for you in retirement or who do you serve would serve you in retirement more than the larger funds would be able to.

Yeah, yeah, with virtually no limits really yeah from bitcoin ut Yeah, because.

You had no control over how the larger funds would invest.

You had a set plan and you were to follow that plan, or follow that scheme, or follow that selection, are balanced or aggressive or whatever.

Here you had a choice.

You can put it in down deposits, you can invest in chas, you can invest in startups, you can buy property, business whatever, business property, I mean business, residential, commercial, whatever.

But you had control of what you invested in.

Right, That was the idea.

That's why they have done so well.

Let's not let's get this right.

Is that jeopardy any fashion by the new text?

Why wouldn't it be?

You tell me how would I You just said would people invest in startups?

Do people?

How many people?

I mean?

Is there is there much startup investment in smsfs?

There would be.

There would be.

I get to see that, I get to see that valuation of that is a nightmare.

It would be.

It would be because obviously it's imaginary to the day this company is sold.

You have people providing loans and advances to you know, property developments.

We're saying, you know, developed properties, we need to build more houses.

People will stop providing loans to these developers.

What are you going to do then?

What are you going to do?

I have not got a holistic view.

This government has no holistic view.

Okay, all right, I think it's pretty clear where you're coming from.

Now.

I think we'll take a break.

We've got some questions which I think are right hopefully right up Hereally as an auditor, you know, I haven't had an order on the show before.

So much for auditors not having much to say.

Yes, indeed, all right, we take a break back at the moment.

Hello, Welcome back to The Australian's Money Puzzle podcast.

I'm James Kirby Tolkington nas Randaria of Reliance Ordering, who operates out of Perth but has become something of a national voice on superannuation, particularly the new super tax.

And it's manny fouls which we have dealt with on the show, though it's rarely been articulated quite so forcefully as today.

Now, Nat, I have a couple of very interesting questions here.

What is from Chris?

Is there any rough pension eligibility calculator that you can determine if you are in the ballpark for a pension before you go through the PTSD inducing as Hugh Robertson would put it, experience a full pension application.

Yeah, is there?

Do you know?

Yeah?

I know exactly where Chris is coming from.

Well, there is an online tension eligibility calculator available on the Center Link website.

However, however, the pages of form filling are unfortunately necessary.

And that's the PTSD that he's don't he about?

And God help you.

If you have a family trans or a private company holding investments, there are more forms to fill.

My suggestion would be talk to your accountant, to your financial advisor, make an appointment with the Central Link Financial advisor.

That is of no costs.

That is good support available there, and you can confirm your minimum eligibility.

Okay, very good, very good.

I'm sure that's useful to you.

Chris.

It's interesting that both the ATO and Central Link do actually have advisors available on the phone, and they will offer advice something that's probably under appreciated, perhaps by investors generally.

Okay, Tony, last question.

I love the show.

We play episodes of the Money Puzzle on our drives to the coast.

There's a lot of hand ringing about the horror of charging capital gains tax on unrealized gains in super above three million.

My understanding is that this is not new in respect of other assets in big Super, and I would love to have someone on your show to check this.

I can see why it would be a pain for the poor suffering three million plus crowd with houses in their SMSF.

Now, Tony's been facetious here, but if I am right, the histronics about it being unprecedented are overblown.

In fact, the tax may just be making smsfs line up with the current practice in big funds.

Am I right?

Technically?

Is he right or not?

They do have to The whole retirement bonus thing is off the back of them having to put aside money for a tax, isn't it.

So?

As I've mentioned, currently there is no regime where unrealized tax is paid within the superannuation system.

Irrespective of whether the fund is large or small.

Retail funds do not currently pay any unrealized gains tax.

In actual fact, the unrealized games tax is introduced since unlike smsfs, large funds find it complex to separate out the income.

But can I just don't.

The large funds also basically put aside money for the risk of having to face taxes, and if you then retire and stay with them, they give you a bonus, and that bonus is actually the money they put aside for the tax that was expected.

There are there are plans that are available.

Yes, there are such types of plans.

But what I'm saying is that is not the unrealized That is not the tax on realized.

Okay, what about land tax.

It's more of a result.

It's like money put aside, James, It's not unrealized gains, it's money put us out.

Some people have written insane.

Land tax is unrealized.

Gains, definitely, and that is where my frustration.

I'm coming to that point exactly so on the question that unrealized gains already exist, there's only two aspects in the Australian tax law that unrealized gains existed.

Some for one is land tax, yeah, and the other one is tax if you become a non resident.

Okay, right, yes, but even there.

You have a choice.

You can eiger pay tax when you become a non resident and you won't get tax when you sell that You won't get any capital gains tax when you sell that asset in the future.

Yeah, but because you paid the tax on that time you became a non resident, or for paying the tax and paid capitals gains tax when you eventually sell the asset, there is a choice.

In this instance, there is no choice.

Sorry, I'm sorry about land tax.

So I mean land tax.

So it's it's it's on realize gains, isn't it.

Land tax is something you pay, okay, on the unimproved value of the land.

And I have written about this before the fact that there is already super funds that are paying land tax.

Right yeah.

Sure, Now you.

Have another tax on the existing property for which you already paid land tax on.

It's on the unimproved value.

Now you wanted on the improved value.

So you could you could have two streams of unrealized paper gains taxes if you had a property and you had lands being paid by your fund over the years, and then you would have a new tax on the alleged or paper or on realized gain of that property, even though you never sold.

It and it's the same asset and it's.

The same acid.

Okay, I think that is.

I think we will leave it right there.

Nas.

That is, I think you've managed to capture how daft This new tax is at its most extreme, and it's probably a good point for people to chew on it and take it on board that this is what's coming down the line.

We're going to need orderers like you, Nas.

Thank you very much on the show.

Yeah, thanks, James.

Just want to add one more thing for Tony to think about.

Really in his question, is that the tax in the on index.

You know, he talks about the poor suffering three million dollar crowd.

That crowd is going to increase in the next ten to fifteen years with cost of living and inflation.

Yes, that crowd is going to become middle I supposed to work is the point I suppose that some would make all right, terrific, Thanks a lot for coming on.

And there's Brandaria of Reliance auditing services.

Thanks, let's have some more emails.

Please love to hear from you the Money Puzzle at the Australian dot com dot au.

Talk to you soon.