The SMSF Association (SMSFA) has strongly criticised the federal government’s decision to include unrealised capital gains in its proposed additional earnings tax on superannuation balances exceeding $3 million.
SMSFA chief executive Peter Burgess described the inclusion of the taxation of unrealised gains in the earnings calculations in two draft bills unveiled by Treasury yesterday as “bitterly disappointing” and said it goes beyond the intended scope of the measure.
“While the association doesn’t support super members with excessively large balances receiving generous super tax concessions, taxing unrealised gains is not the answer. It will give rise to many unintended consequences, defies long-standing principles of our tax system and will result in outcomes inconsistent with the stated objective of this new tax,” Burgess said.
“The stated objective of clawing back tax concessions afforded to high-wealth superannuants is to reduce the revenue lost due to existing concessions. It shouldn’t be to impose a new tax, which, for some, will not only claw back those concessions, but result in more tax being paid than would have been the case if there were no concessions.
“For example, there will be scenarios where the inclusion of unrealised capital gains results in taxpayers paying an implicit rate of tax on taxable super earnings exceeding the highest marginal tax rate.”
He also took the opportunity to reiterate the SMSFA’s previous stance on the matter, suggesting a simpler solution was to modify the reporting requirements in the SMSF annual return form and use actual allocated taxable earnings as the measure of earnings.
The industry body also raised concerns about the short consultation period for the draft bills, describing it as inadequate to canvass industry feedback and reminiscent of the limited timeframe during the consultation period for the non-arm’s-length expenditure draft legislation released in April.
“These are all issues we would like to raise with the government and Treasury, but the short two-week consultation period, which means the legislation is likely to be introduced into parliament before the end of this calendar year, will make that difficult,” Burgess said.
Commenting on the release of the draft bills, Sladen Legal principal Phil Broderick pointed out the explanatory materials (EM) contained within the legislation directly mention the proposed objective of superannuation as a justification for the measure.
Broderick noted the EM stated the earnings tax would still provide concessions to save for retirement via superannuation while improving the equity and sustainability of the system by limiting the taxpayer support available to individuals with large balances.
“As foreshadowed, the first act of the (yet enacted) objective of superannuation is as a sword to justify further changes to the superannuation system. It seems a long way from the objective’s original aim to be a shield from further government tinkering to the superannuation system,” he said.