New super rules give working children tax free loophole
The working children of Australia’s baby boomers could use their parents’ superannuation funds as tax-free investment accounts under new rules to be introduced on 1 July.
Under the changes announced in the 2006 Federal budget super payments will be tax-free for people aged 60 and over and super experts are saying that this windfall account could be accessed by adult children seeking the same tax-free benefits.
Peter Haggstrom, a super expert with Deutsche Asset Management, said the super funds of aged parents could be used by adult sons and daughters as “an investment washing machine” to make tax-free earnings. “It will happen. People will use anything to get a bit of tax arbitrage and this is because the rules now treat the over-60s so differently,” he told The Australian.
“An adult child could give their under-65 parent $50,000 or $100,000 to contribute to their super fund at the beginning of the year and get it out at the end of the year or later tax-free. If you’re rich and there are no social security consequences about you having extra money in your name then you can certainly do it,” Mr Haggstrom said.
But there are risks as Anne-Marie Esler, of Centric Wealth, pointed out. “If the parent dies their fund balance becomes a death benefit and any informal contribution arrangements would have absolutely no legal recognition.” She said she agreed the method was “quite possible” but Centric Wealth would not be endorsing it.
For most baby boomers the changes which start on 1 July provide them with an attractive new system of tax-free super. People 60 plus who stay at work need pay only 15% tax. They can salary sacrifice almost all their pay into super, paying only 15% contributions tax, while living off their existing super tax-free under transition-to-retirement rules.
