Why superannuation may have become more tax-effective following budget changes

While everyone was arguing about negative gearing, superannuation became one of the biggest winners of May’s tax overhaul, and almost nobody noticed.

That’s the take from Motley Fool Chief Investment Officer Scott Phillips, speaking on 7NEWS’ latest episode of Money Talks, powered by Vanguard.

“Before the budget, super was still better than investing in your own name because of the tax advantages that come with it,” says Motley Fool Chief Investment Officer Scott Phillips.

“The changes they made make investing in your own name less attractive than it was, and that makes super far more attractive relatively than it used to be.”

Inside super, contributions are taxed at 15% instead of your marginal rate , and the capital gains tax rate is reduced and untouched by the reforms. With the tax perks of investing outside of super now smaller, that gap just got wider.

“I’ve already had people all over the place tell me they’re shoveling more money into super than they were last time, because they want the extra tax benefit,” Phillips said.

The strategy inside your fund doesn’t need to change. What’s worth revisiting is how much you’re putting in, and how much you’re paying to do it. Phillips’ rule: fees are the one variable you actually control.

“You can’t control the returns. You absolutely can control your fees. Every time you save a dollar on fees, it’s a dollar in your pocket, and that dollar compounds for decades into your future.”

Find a reputable, low-fee fund, check your investment option actually matches your age and risk appetite rather than defaulting to whatever sounds safest, and don’t be put off by the admin. “It’s one page these days,” Phillips said.

Own a negatively geared property bought before 7.30pm on budget night in May?

The old rules apply to that property for as long as you hold it and for as long as ownership doesn’t change.

Yet Phillips says he’s watched investors sell anyway, convinced they were about to lose a benefit they’d already locked in.

“That’s a rash move.” Sell now, and that tax benefit is gone for good, you won’t get it back on a new property.

As Phillips explained on 7NEWS’ latest episode of Money Talks, powered by Vanguard, buried in the changes is a new 30 per cent minimum tax rate on capital gains, no matter what you earn.