Superannuation, Tax

Deeming rate better for $3m tax

superannuation earnings tax deeming rate

The use of a deeming rate, in lieu of the proposed calculation method, to achieve the outcomes of the $3 million superannuation earnings tax would be within normal industry practice.

The use of a deeming rate to determine the additional tax on superannuation balances exceeding $3 million would be a more equitable calculation method and aligned with common practices in the super industry, according to the SMSF Association.

Speaking at the industry body’s Technical Summit 2023 on the Gold Coast recently, SMSF Association chief executive Peter Burgess said in light of the proposed $3 million superannuation earnings tax, the SMSF sector was shouldering the burden of large Australian Prudential Regulation Authority (APRA) funds not being able to report the taxable earnings of members.

“Make no mistake, this industry is paying a penalty for the fact that the large funds can’t report this information and to some SMSF members it’s a hefty penalty that we are being asked to pay,” Burgess said.

“If you look at the SMSF annual return right now, there is a box there that talks about allocated earnings down at the member level. We could make some changes here, insert a new label and call it allocated taxable earnings or losses and change the label to other allocated earnings or losses.

“Under this approach if you can’t report that information, and we understand many large APRA funds can’t [because] they can’t report taxable earnings at the member level, if they don’t have that information, then they would be subject to a deemed earning rate.”

He pointed out the use of a deeming rate was already within accepted industry practices in the superannuation sector and the concept could be applied to achieve the outcomes of the proposed super earnings tax.

“Deemed earning rates are not new; that concept is well used in the superannuation industry,” he said.

“We see it used for excess pension balances to calculate earnings attributable to excess pension balances. We see it for the First Home Super Saver Scheme, where they use it to calculate how much can be withdrawn.

“This is not a new concept; it’s typically based on the 90-day bank bill rate plus an increase in percentage points. Why can’t we do something similar here for this particular tax?

“What we are trying to do here obviously is get unrealised capital gains out of the calculation. We think that’s unfair, we think it’s discriminating against SMSFs, particularly those that have business premises in their fund.”


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