Compliance, Legislation, SMSF, SuperStream, Tax

$3m cap offers no revenue relief

Superannuation earnings tax penalty

Superannuants will not receive any relief from the revenue calculation associated with the $3 million soft cap in the event of a tax liability.

Individuals caught by the proposed tax on total super balances (TSB) above $3 million will have the amount count toward the calculation of fund earnings should they decide to pay the tax from the SMSF, an SMSF legal expert has warned.

Specifically, DBA Lawyers principal Dan Butler identified the danger in subdivision 296-50 of the exposure draft legislation for the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 during a DBA Lawyers online update webinar held last Friday.

He explained when a superannuant is identified as having a TSB in excess of $3 million, they may request a release authority from the ATO and choose which superannuation interest the funds to cover the liability will come from.

However when asked whether the withdrawal will be included, or added back, as part of the TSB calculation method outlined in the proposed legislation and therefore considered taxable for the purposes of the bill, Butler affirmed this to be the case.

“Under 296-50 E, the amount of a payment made during the year by a super fund from a superannuation interest of yours and in relation to a release authority issued under Division 121 or 135, other than a release authority that relates to a first home super saver – which has got different treatment, is added back,” Butler said.

“When you get a release authority, that’s a withdrawal, and the really insidious thing about this tax is if you get an excess contribution or excess transfer balance tax, you can get a release authority, but when you get a release authority [for the earnings tax], that is added back to your adjusted TSB.

“Any withdrawal is added back, so be very careful about that, as it’s double taxing,” he said.

Further, he added this principle is applied generally to withdrawals, such as with disability insurance payments, which has been a source of industry discontent.

“The failure to exclude disability insurance from the TSB [calculation] in the same manner as compensation payments and add-back amounts withdrawn as disability benefits or under a release authority for the payment of super-related taxes is a big issue for the SMSF Association,” he noted.

“If you get permanent incapacity and death insurance, that should be carved out in a similar way to structured settlements. The government has not accepted that.”

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