SMSF, Strategy, Superannuation, Tax

Earnings tax creating capital gains confusion

$3 million earnings tax capital gains

The inclusion of unrealised gains within the proposed $3 million earnings tax is confusing superannuation fund members.

SMSF investors are mistakenly assuming the government’s proposed $3 million earnings tax will impact all capital gains within their fund and they may liquidate tax-generating assets to avoid it.

Heffron managing director Meg Heffron said while SMSF trustees and members were aware an asset purchased in their fund would attract capital gains tax at the time of sale, they were also assuming any gains prior to the commencement of the earnings tax would also be considered unrealised gains and taxed accordingly.

“If you think of an asset that was bought years ago and at 30 June 2025 when this tax starts to apply, that asset is likely to be worth more than it used to be and is likely to keep going up in value before I eventually sell it,” Heffron said during a presentation at Class Ignite 2023 in Sydney today.

“Our clients are very aware that what’s going to happen under this new tax is that the incremental growth, or some of it, is going to be taxed each year.

“What they are totally missing though is the new tax is not looking at capital gains they have already made or built up before 30 June 2025. The new tax never taxes those.”

She said this needed to be pointed out as some SMSF trustees and members were still debating as to whether they should take money out of super to deal with the proposed tax.

“What they are forgetting is the fact that if they do that, they are volunteering to pay capital gains tax on any assets they have to sell to take that money out and the gains they have built up so far are the one thing this new tax doesn’t tax,” she said.

“It is kind of like saying I want to avoid paying tax on unrealised capital gains in the future by volunteering to pay tax by realising capital gains right now. I think definitely clients are missing that.

“When it comes to the fund itself, eventually the asset will be sold and nothing changes there and it’s critical to think of the earnings tax as very much like the Division 293 tax in that the reference points are all things that are happening inside the super fund, but it is not a super fund tax.

“So when the asset eventually gets sold, the fund will do its normal thing and state what it bought it for and what it sold it for, allow for exempt current pension income and those kinds of things, and there will be a capital gains tax bill at that point.”

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