An SMSF specialist has released a calculator highlighting the operation of the proposed earnings tax for superannuation balances over $3 million, stating it may help people understand that the tax was not an equitable solution to deal with tax concessions on large balances.
SMSF Alliance principal David Busoli said the calculator, hosted on his firm’s website, compared the government’s proposed method to tax the difference between the size of a total superannuation balance (TSB) at the start and end of the financial year with the use of a deeming rate, as well as a method that applies a 15 per cent tax on earnings on balances above $3 million, with and without indexation.
Busoli noted the government’s TSB variance method would create hardship for those required to pay tax on the increased value of assets where there is no cash available as the fund was weighted towards a single asset.
“This structure has been adopted in line with known cash-flow risks – except a new tax based on growth. The ability for a member to pay the tax external from the fund will be of little use to those who have little wealth external to superannuation,” he said.
Busoli said the deeming rate method used in the calculator was simple and understandable but may mean that tax would be payable in a financial year where markets declined and the government’s proposal would provide a better result for members.
He added the calculator could also produce the actual tax result intended by the government using an alternative calculation method that calculated tax at the fund level and distributed the net amount to member accounts, and rejected claims it was too complex to implement.
“Software modifications could calculate the attributable member share, before the application of pension exemptions, and populate a new member label in the fund returns,” he said.
“It would remove all of the contentious issues associated with either of the previous methods – except the level of the cap to be applied. It would also be equitable.”
He also put forward a new earnings tax cap set at twice the general transfer balance cap as an alternative solution to the TSB model proposed by the government.
“If Treasury is steadfast on using the methodology they devised, then, with due consideration of as many of the contentious issues as possible, a cap based on twice the general transfer balance cap might be a suitable compromise. It would not require yet another cap methodology and would be indexed,” he said.
“The purpose of this modelling tool is educative so I have taken the liberty of sending an email link to each Labor federal member and senator in the hope that they will understand that replacing one inequity with another is not equitable at all.”
