The Institute of Financial Professionals of Australia (IFPA) has rejected the government’s proposal to levy an additional 15 per cent superannuation tax on member balances over $3 million as a method to make the country’s retirement savings system fairer and more equitable.
In its submission on the measure, the professional body suggested the government’s proposed methodology to calculate the new tax is flawed because it will apply a charge to unrealised gains and suggested if the tax concessions for superannuation require amendment, there is a better way to go about it.
“The obvious approach is for the extra 15 per cent tax to be applied to actual taxable income. Existing software programs already allow superannuation funds to report and calculate actual taxable income at the fund level and distribute the net amount to each member’s account. Only a slight modification would be required to break up the fund’s earnings into two components for each member, being taxable earnings and untaxed earnings (unrealised gains),” IFPA head of superannuation Natasha Panagis said.
“This approach is the simplest way to tax actual earnings on member balances that are above $3 million as it is based on current tax law principles and will mean members will not be taxed on any unrealised gains.”
Panagis pointed out Treasury’s suggested methodology for calculating the new superannuation tax has been justified in order to prioritise administrative simplicity, but as a result seems to be sacrificing fairness.
Further, she argued the system does not require the introduction of another member balance cap and there are existing mechanisms in place, such as the transfer balance cap and the contributions caps, to address the existence of excessive superannuation balances.
“We urge the government to strongly reconsider the proposed model as the main driver seems to be the need for an urgent tax grab to address the commonwealth’s debt position that the government does not need to pay back if markets crash, with a more ‘equitable’ superannuation system running a distant second,” she noted.
