SMSF, Superannuation

TSB used to level playing field

Treasury has admitted the use of the total superannuation balance to levy a proposed earnings tax was chosen to prevent people moving funds to sidestep the tax.

The decision to use the variance in the total superannuation balance (TSB) to calculate the proposed super earnings tax was partly designed to prevent people using an SMSF or Australian Prudential Regulation Authority (APRA)-regulated fund to avoid the tax, according to a Treasury consultation paper.

The paper, “Better Targeted Superannuation Concessions”, released last week as part of the consultation process on the earnings tax, stated the equal application of the TSB variance method would be the cheapest and simplest option to apply to both SMSFs and APRA-regulated funds without favouring either.

“Superannuation funds, including many SMSFs, have a pooled investment approach which is shared between members,” the paper stated.

“Many impacted individuals have an interest in an APRA-regulated fund, or both a SMSF and an APRA-regulated fund, increasing the importance of a sector-neutral approach to implementation.

“The systems and reporting changes that would support calculating taxable income for APRA-regulated funds at a member level present significant challenges.

“Utilising existing fund reporting requirements and applying the reforms at the individual level largely avoids these issues and is consistent with the approach taken in other measures that require different superannuation accounts to be aggregated, such as the transfer balance cap.

“Applying the new arrangements equally to accounts held in SMSFs and APRA-regulated funds ensures that it does not influence the choice of members to invest through an SMSF or APRA-regulated fund.”

It noted all superannuation funds report the information required to calculate TSBs and while SMSFs could hold unlisted assets, they were already required to report market valuations for these assets on an annual basis for the purposes of calculating the TSB.

While it stated the TSB variance method was the most suitable, it did flag some changes would be needed in how the information would be passed on to the ATO, which would calculate the tax liability.

“While the proposed model is intended to minimise compliance costs, it is expected that some amendments to these reporting arrangements will be required to support the new rules,” it stated, adding SMSFs would likely report as part of the end-of-year tax return process, but APRA-regulated funds may need expanded reporting.

“This would be expected to include reporting on benefit payments by APRA-regulated funds, noting SMSFs already report benefit payments at the member level on an annual basis.

“Where additional information is required, it is proposed the ATO would receive this information directly from superannuation trustees. This could be done through changes to the general reporting requirements, specific requests for information by the ATO, or a combination of both.”

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