Soft cap has member death impact

SMSF member death

The proposed 30 per cent tax on super balances above $3 million would continue to have an effect even after an SMSF member passes away.

An SMSF strategy specialist has alerted practitioners to the possible effect the federal government’s proposed 30 per cent tax on super balances above $3 million would have following the death of an SMSF member.

“I’m not sure how it’s going to apply [when a member passes away]. If the member dies and they have a balance over $3 million in their final year, [it may have an impact],” LightYear Docs director Grant Abbott told attendees of a technical webinar he recently hosted.

“You see we can have a position where if an estate is open for two to three years and [the superannuation benefit] is above that $3 million threshold, that money is going to actually be deemed to be accrued and earned by the executor of the estate, so again there are a whole lot of issues there as well.

“So in this situation you’d want to make sure you pay out member balances really quickly.”

According to Abbott, the government is effectively introducing a superannuation wealth tax.

“That’s because essentially we’re looking at the increase in an SMSF member’s wealth in the one year and making it subject to tax,” he noted.

He identified three SMSF stakeholder groups that will have additional pressure brought to bear on them should the proposal be passed by parliament.

“I feel sorry for the SMSF administrators. Secondly, I feel sorry for the auditors because the policy is going to put a lot of pressure on them to ensure valuations are [up to date],” he said.

He nominated the ATO as the third stakeholder for which he felt sympathy as it will have to keep on top of the superannuation members who will be captured by the new tax, as well as monitor how the tax is paid, be it personal or through one or several super funds.

The government last month announced what has been described as a proposed $3 million soft cap on superannuation balances.

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