Superannuation members who are working and have a balance of more than $3 million should be permitted to reduce it by withdrawing funds on a tax-free basis, according to a major accounting body.
Chartered Accountants Australia and New Zealand (CAANZ) called on the government to allow the withdrawals as part of its submission in response to Treasury’s “Better Targeted Superannuation Concessions” consultation paper released in early March.
CAANZ noted the proposed additional tax on earnings for total superannuation balances (TSB) above $3 million would apply to all fund members, including those who had not retired and those who did not meet a condition of release.
The accounting body’s submission added that while most large superannuation balances were likely to be held by older and retired individuals, that would not apply to all fund members with a TSB of more than $3 million.
“There will currently be a small cohort of individuals who are yet to retire who have a TSB of at least $3 million who are not in receipt of structured settlement or personal injury order contributions or total and permanent disablement benefits,” the submission stated, adding the large TSBs were likely the result of high investment returns over extended periods of time.
“These individuals, and other individuals in a similar position in future, should be given permission to withdraw their superannuation balance so that their TSB falls below $3 million over a 12-month period, or longer if the ATO approves.
“Such withdrawals should be tax-free and a super fund should not incur capital gains tax when it disposes of any assets in order to make this benefit payment.”
CAANZ noted that for this to occur the government would have to address the fact these kinds of withdrawals were not permitted under the constitutional powers used to regulate superannuation.
The submission pointed out that for a superannuation fund to receive taxation concessions it must have a responsible entity, generally a trustee, which must also be a corporation within the meaning of section 51(xx) of the Constitution, or have as its key purpose the provision of old-age pensions within the meaning of section 51 (xxiii)13 of the Constitution.
“In other words, since the Superannuation Industry (Supervision) Act and related legislation was put in place, the commonwealth government’s ability to regulate superannuation has relied on a mixture of the taxation, corporations and old-age pensions powers,” it stated.
“The corporations power is used to regulate corporate trustees and the old-age pension power is used to regulate super funds with individual trustees.
“A solution to the reliance on the old-age pension power might be to restrict withdrawals from superannuation before retirement to those funds with a corporate trustee.
“We believe those funds wishing to access this concession that have individual trustees will seek to change their trustee arrangements.
“The government should put in place mechanisms to facilitate such a change.”
