The SMSF Association has urged the federal government to reopen industry consultation on the proposed additional tax on total super balances above $3 million following the unveiling of the 2023 federal budget, which revealed no significant changes to the measure.
Treasurer Jim Chalmers reaffirmed the government’s intention to implement the proposed tax, which was first announced in February, when handing down the budget on Tuesday evening.
However, SMSF Association chief executive Peter Burgess called on the government to provide further consultation opportunities on the measure to allow for a comprehensive understanding of the proposal’s implications, particularly for small business and farming communities.
“The previous consultation phase was only 18 days, including Easter, and that was simply insufficient time for the industry to fully identify all the issues. We understood the need to finalise things for the budget, but that should not come at the expense of rushing important legislation with unintended consequences,” Burgess said.
“If the government proceeds with the taxation of unrealised gains as proposed in their consultation paper released in late March, given many small business premises and farms are owned by SMSFs, this new tax could drive up their costs substantially at a time of unprecedented cost-of-living increases.”
He added the industry body was also still resistant to the idea of using the total super balance (TSB) as the basis for the tax calculation as it would create bias in the treatment of unrealised gains.
“We stand by our position that using a member’s TSB to calculate earnings is neither simple nor fair,” he said.
“By definition, a member’s TSB includes unrealised gains and a growing list of items that will need to be excluded to ensure ‘earnings’ for the purposes of this new tax are not overstated. This methodology discriminates against those funds who can identify and report to the ATO actual taxable earnings attributable to each member.”
The association stated the amendment to the non-arm’s-length expenditure tax penalties was also more complex than it appears in the budget.
“Rather than a multiplication factor of five being applied to the expense shortfall amount, two times the general expense will be taxed as non-arm’s-length income,” Burgess said.
“Although this proposal is an improvement, a factor-based approach is neither a practical nor desirable solution for the sector. It will require SMSF trustees to determine if a general expense has been undercharged and by how much.
“This may sound like a simple task, but the reality is in a dynamic market such as the SMSF sector there can be significant variation in the services provided, particularly when it involves related entities, so determining a ‘market rate’ can be difficult, costly and often subjective.
“It remains our view that the 2019 amendments to the NALI rules were overreach and the mischief they were intended to address has already been addressed by previous ATO guidance and tax determinations.”
