The proposed earnings tax on total super balances over $3 million highlights an inconsistent approach to retirement income assets with governments seemingly happy to penalise one source of revenue while being very generous with others, according to a major accounting body.
Chartered Accountants Australia and New Zealand (CAANZ) superannuation and financial services leader Tony Negline said the proposed earnings tax that may be applied from 1 July 2025 may appear to be a good idea as “fat cat super funds” would pay more tax, but this approach was inconsistent with the generous treatment of property in retirement.
“There is around $3 trillion in the superannuation sector and, at the moment, about $9.9 trillion in residential real estate and you don’t have to be Einstein to know that more people own residential real estate than are in superannuation funds,” Negline said during a presentation at Class Ignite 2023 in Sydney today.
“Now what we have is a retirement income system that exempts for capital gains tax (CGT) the family home regardless of its value and we have no dramas with that as it assists a lot of deceased estates, retirees, those looking for money in order to pay a deposit on a retirement home or pass on money to their deceased estate.
“Those family homes are also exempt from the asset test and there’s no deemed income for the income test as far as the age pension is concerned.
“So why is it okay for one retirement product to be exempt in those fashions, but superannuation gets belted black and blue and everyone who has a higher account balance can pay more tax? Where is the logic in that approach?”
He said he was not suggesting taxation policies in relation to the family home should be changed, but they displayed a lack of consistency in how retirement income assets were treated and this was also evident in the proposed objective for superannuation.
“The CAANZ view is that we do not like the proposed objective because it is too singular,” he said.
“One of the things that came out of the Retirement Income Review was that retirees who own their own home have a much higher standard of living in retirement than those who do not. One of the reasons for that is the CGT exemption and the asset not being counted under the assets test or the income test for the age pension.
“The objective of superannuation is too limited, yet all of the changes that have been made in the last 20 years could fit into this objective, regardless of what they are and that some of them are contradictory.
“Whether it be reasonable benefit limits, the transfer balance cap, changing contribution caps, no tax after 65 if you are drawing a pension, whatever it is, I can plug it into that objective.
“So what is its point? We need an objective for the whole retirement income system that looks at the whole thing, not just this little narrow piece of runway.”
