Legislation, Superannuation, Tax

Soft cap tax unjust

Soft cap tax

An industry body has rejected the proposed superannuation earnings tax, citing several provisions contained within the draft legislation of the measure as inequitable and problematic.

The Institute of Financial Professionals Australia (IFPA) has voiced its discontent with the government’s decision to push ahead with an unchanged policy to impose additional tax on total super balances (TSB) over $3 million.

The industry body reiterated its opposition to the impost and raised concerns about various unresolved issues related to the measure, which have been expressed since the government initially revealed its plan to introduce the measure earlier this year.

IFPA head of superannuation and financial services Natasha Panagis specifically drew attention to the inclusion of taxation on unrealised capital gains in draft legislation released by the government this week, describing it as inequitable and requiring re-evaluation.

“One of the most unfair aspects of this proposed tax is taxing unrealised gains. Measuring earnings by calculating the difference in movements in a member’s total superannuation balance is not the right solution. This is a major flaw of the proposed model and is an unprecedented change to the current Australian tax regime,” Panagis noted.

“In particular, farmers and small business owners who have legitimately contributed their farms or business properties to their SMSF may struggle to meet this new tax impost if their fund has cashflow issues or if members have little to no wealth outside of superannuation to pay the tax. It’s one thing to pay tax on assets actually sold but paying tax on assets that are yet to be realised is unjust.”

Echoing recommendations made by the SMSF Association, Panagis suggested adopting a simpler, more straightforward approach could be employed instead of taxing unrealised capital gains.

“The obvious approach is for the extra 15 per cent tax to be applied to actual taxable income. This would avoid taxing unrealised gains, rule out the need to calculate an individual’s modified TSB by adding back withdrawals and reducing it by contributions received by the fund and also eliminate the need to track carried forward negative earnings,” she suggested.

The absence of indexation for the $3 million threshold, the lack of tax refunds in years with negative earnings when an individual’s total superannuation balance falls below $3 million and the potential for double taxation were also areas of concern she identified.

“We will continue to work with the government by raising the key issues that remain unaddressed in the short 16-day consultation period the industry has been given to respond to the draft legislation,” she said.

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