SMSF, SMSFA, Superannuation

Soft cap discriminatory to SMSFs

Soft cap

The government has been accused of showing bias against SMSFs in its proposal to implement a $3 million soft cap on superannuation members.

The SMSF Association has described the proposed policy to implement a 30 per cent tax on members whose total super balance is greater than $3 million as one that discriminates against SMSFs.

The claim was made as part of the industry body’s submission to Treasury regarding the measure, where it stated the methodology put forward to calculate the tax liability favoured one segment of the superannuation industry to the detriment of SMSFs.

“The proposed model has been designed for APRA (Australian Prudential Regulation Authority)-regulated funds, yet three-quarters of the estimated 80,000 members being impacted are SMSF members,” association chief executive Peter Burgess said.

“The lack of equity and unintended consequences arising from the proposal are driven by a desire to placate the large APRA funds – a clear case of the ‘tail wagging the dog’. Given its significance for SMSFs, and the distortions already arising, any model must be considered in an SMSF context.

“It is unfair that SMSF members with balances above $3 million will be required to pay tax on unrealised gains because some APRA-regulated funds may find it difficult to report the taxable earnings attributable to members.”

The organisation suggested the calculation of the tax liability should be based on actual earnings rather than the movement in a person’s total super balance from one year to the next if the policy is ultimately implemented.

“With minor system and reporting changes, the SMSF sector, and we understand some APRA-regulated funds, can report a member’s actual taxable earnings to the ATO on an annual basis,” Burgess noted.

“So, we are asking the government to give these funds the opportunity of reporting actual earnings rather than the proposed model, which would calculate earnings based on the movement in the member’s total super balance and, which by definition, includes unrealised gains.”

In situations where a super fund cannot or chooses not to report the actual earnings of a particular member, the professional body recommended a default notional earning be applied.

The SMSF Association’s criticism of the government did not stop with the calculation methodology of the new tax, extending to the process being undertaken to determine the final details of the policy.

“Through engagement with our members, stakeholders and other industry groups we are seeing new concerns arise daily and the limited consultation period has not allowed sufficient time to properly consider the impacts and identify the unintended consequences,” Burgess noted.

“The process has the appearance of a tick-a-box exercise that risks detrimental outcomes for many individuals affected by the proposal.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital