The SMSF Association has confirmed the proposed tax increase for superannuation members with more than $3 million of assets will impact one type of retirement savings vehicle in the industry more than any other.
During a media interview conducted today, SMSF Association chief executive Peter Burgess acknowledged: “This change will not just impact self-managed super fund members, it does apply to members in other funds as well, but clearly it will have its biggest impact in the self-managed super fund sector.”
Burgess admitted the association was surprised by the government’s announcement yesterday, having expected a consultation process to have occurred with the industry before any proposed policy changes were put forward.
“[There has not been any consultation] as yet, but they have said to us there will be a consultation phase now,” he revealed.
“I’d expect this is the industry’s opportunity to voice its concerns and we’ll certainly be doing that, particularly around the technicalities.”
According to Burgess, one of the SMSF Association’s main concerns is the government’s intention not to include an indexation component to the proposed $3 million threshold.
“We think that’s a real issue and it does need to be indexed,” he said.
Further, he pointed out the process of calculating the additional tax payable is also troublesome.
“We’re just going to have to wait and see how this tax is going to work. We don’t know whether it’s going to be based on what we call a notional calculation of the earnings above that threshold and whether the fund will be required to pay that tax,” he noted.
“[We don’t know] whether it will work similarly to the way it works now for people who go over their non-concessional contribution cap where they receive a determination, a tax bill essentially, and have the choice whether to pay that themselves or take it out of their fund. So there’s a lot of detail to come.”
He admitted the introduction of a balance cap like this, a “soft cap”, was preferable to the imposition of a “hard cap” where super monies over the $3 million mark would potentially have to be exited from the system.
However, he suggested amendments to the superannuation rules like this will have a greater impact than just a higher tax liability for some individuals.
“Whenever they make changes to super it does erode confidence in the system and that’s been one or our concerns with having another cap introduced into the system,” he said.
“It is already a complex system and adding another cap will just make the system even more complex.”
He also expressed angst as to whether this change is an indication a more severe policy direction will be seen in the future.
“It will be $3 million, but caps can be reduced over time and we have seen that in the superannuation industry with the contributions cap, which has been reduced over time. So it does create uncertainty and that is a concern,” he noted.
