Legislation, Superannuation, Tax

Simpler soft cap tax possible

Soft cap superannuation earnings tax calculation method

A peak accounting body has proposed a more straightforward approach to the current calculation method outlined in the draft legislation for the superannuation earnings tax.

Chartered Accountants Australia and New Zealand (CAANZ) is calling on the government to rethink its proposed method for calculating tax liabilities associated with the $3 million soft cap tax, suggesting a more equitable approach would be to divide the impost evenly between superannuation earnings and lump sum withdrawals from funds.

In its latest submission to the government, the peak accounting body said the calculation method proposed as part of the measure was “incredibly complex”, warning of increased costs and red tape for both superannuation members and the ATO when undertaking compliance action in relation to the tax.

To this end, CAANZ suggested the government opt for a simpler approach, proposing that half of the tax should be imposed on fund withdrawals rather than being uniformly applied to an individual’s total superannuation balance.

“An alternative to the complex calculation methodology proposed in the exposure draft would be to tax the proportion of the taxable component of any lump sum benefit above $3 million at 15 per cent for lump sum withdrawals,” the submission stated.

“This will mean that total tax paid on the taxable component will be 30 per cent – 15 per cent from fund earnings tax and 15 per cent upon exit from the superannuation system. This is a much simpler solution.”

Under the alternative method presented by CAANZ, pension payments and specific benefits would be exempt from the proposed tax. The benefits exemption would apply to individuals who have received structured settlement contributions, personal injury benefits or permanent incapacity payments.

“This would mean that the tax would apply proportionately as already explained to lump sums paid to individuals of all ages, including those aged at least 60, all lump sum death benefits, terminal illness benefits and lump sums above the tax-free low-rate cap for those aged under 60.”

The accounting body also took the opportunity to highlight the exclusion of unrealised capital gains and the indexation of the $3 million threshold as issues it hoped the government would address when final legislation for the measure is released.

The consultation period for the draft legislation for the earnings tax on total superannuation balances over $3 million closed last Wednesday.

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