The federal government has ignored key concerns regarding non-arm’s-length expenditure (NALE) and the super earnings tax in handing down the 2023 budget, according to industry experts.
Institute of Financial Professionals Australia (IFPA) head of superannuation and financial services Natasha Panagis said the recent announcement to amend the non-arm’s-length income (NALI) provisions caught the industry by surprise and she expressed concerns years of industry consultation on the matter had gone unheeded.
“Despite hoping for some common sense to prevail for some of the existing measures that had already been announced, unfortunately we didn’t get the result or the answer that we were hoping for,” Panagis told attendees at an IFPA post-budget webinar today.
“Earlier this year in January, Treasury did release a consultation paper, which considers some options to amend the NALI/E provisions in the tax act. Unfortunately, that consultation paper didn’t address a number of critical points that have been raised by the industry over almost five years’ worth of intense lobbying. So it was completely disregarded.”
Smarter SMSF chief executive Aaron Dunn agreed the government had ignored years of consultation on the NALI matter in its budget announcement.
“It is somewhat staggering that after five-plus years of trying to resolve these measures, the proposed outcome has resulted in an unlevel playing field between Australian Prudential Regulation Authority-regulated funds and SMSFs and that all of the proposed approaches from within a unified voice on this topic appears to have fallen on deaf ears,” Dunn said in a blog post.
Panagis added there was still uncertainty around the proposed tax on superannuation balances above $3 million after no new details were revealed in the budget and expressed doubt about the possibility of any changes being made to the proposal.
“Now we were all hoping on budget night that again common sense would prevail and that the government would adjust the method used to calculate the extra tax,” she said.
“We were hoping that they would at least index the cap or ensure that only actual taxable income was taxed and therefore [exclude] unrealised gains [from] being taxed.
“But unfortunately, all of that was not announced and it seems that it won’t be happening. Considering the revenue will be the same, the government is unlikely to make any wholesale changes to the design aspect of this tax, even though there’s been a huge uproar in how they’re going about doing this.”
Dunn also noted the taxation of unrealised gains in the proposed soft cap shows little regard for the concerns raised by the financial services sector.
“In what was a short period of consultation before the federal budget, the SMSF industry did have an opportunity to raise a number of potential issues with the government’s proposed measures. Unsurprisingly, the most controversial was the unrealised capital gains, which on face value does not appear to have changed,” he said.
“Therefore, you do wonder to what extent Treasury listened to these issues raised by the sector as part of the consultation process. Only the release of draft legislation will expose the full extent of what they took on board.”