Earnings tax guidance reveals unknowns

super earnings tax guidance

Government guidance on its proposed superannuation earnings tax has raised questions about events that push people into the new tax threshold

The range of unknown issues arising from the government’s proposed 30 per cent tax on superannuation earnings is growing, with a number centred on what happens when a super fund member is tipped past the $3 million threshold by a benefit or payment.

Smarter SMSF chief executive Aaron Dunn said the government had aimed to address some questions around its proposal with the release of an information sheet that had five examples of the 30 per cent tax being applied, but this had raised more questions.

“There are a still a range of unknowns, arguably more unknowns than the information that we’ve got within the fact sheet and the five examples that it included,” Dunn said during a recent online briefing.

“Putting aside the industry is not happy with the fact that there’s a tax that now applies to unrealised profits in a fund, what we want to hear and get further clarity on is things like reversionary pensions.

“We could have scenarios where, for the purposes of this arrangement, two individuals are not defined under this proposal because they had less than $3 million, but started with pensions at $1.6 million initially, and they may be worth $2 million now in the retirement phase.

“As soon as one of those members dies, and that pension reverts to the survivor, that survivor is now caught within those rules.”

He said the issue of family law splits also needs to be resolved, questioning whether any attribution of a benefit from a former partner to another can cause the latter to be subject to the $3 million threshold, adding the same could occur with the insurance proceeds from total and permanent disability payouts.

In the same presentation, he noted that where these events could tip fund members over the threshold, they would be unable to use reserves to pay the tax and instead it was likely, based on past ATO guidance, they would be allocated to members and used to assess the earnings tax for each member.

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