The calculation method proposed to tax superannuation earnings for balances over $3 million has been labelled as unusual in the Australian taxation system by the peak body for superannuation which said details around its operation were still needed to assess the proposal fully.
The Association of Superannuation Funds of Australia (ASFA) said while it supported reforms for limiting tax concessions to people with very high superannuation balances, including the intent of earnings tax, it was concerned about the process and scope of the changes.
“The methodology adopted for the proposed Division 296 tax uses a proxy calculation of an individual’s earnings in relation to their superannuation interest, which includes unrealised capital gains,” ASFA stated in a submission to Treasury regarding the draft bill for the tax.
“This is an unorthodox approach, in the context of Australian taxation arrangements, and one that should not set a precedent for the taxation of superannuation or personal income tax more broadly.”
ASFA added it accepted the use of the simplified proxy calculation was to reduce the compliance and cost burden which would be passed onto superannuants if funds were required to calculate a more precise earnings figure but noted key information on the valuation methodology had not been released.
“The draft Bill requires the determination of an individual’s TSB [total superannuation balance] with reference to the ‘TSB value’, rather than by reference to the individual’s transfer balance account.
“The TSB value is to be determined by a method or value prescribed in regulations or, if there is no prescribed method or value, by using what is colloquially known as the ‘withdrawal benefit’ for the interest.
“Given the adoption of this TSB value concept, and the scope of detail that is to be prescribed by regulation, the full impacts of the Division 296 tax for many superannuation funds and individuals cannot be ascertained from the draft legislation currently under consultation.
“Without this detail it is not possible for stakeholders to assess the totality of the legislative regime for the Division 296 tax.”
ASFA highlighted that given the draft bill will introduce a new tax which impacts existing areas of tax law by removing the link between the TSB and the transfer balance account a post-implementation review should be scheduled to address unintended consequences not addressed during the short consultation period.
The super body suggested this review take place two years after the commencement of the tax and cover whether the threshold for imposition of the tax remains appropriate or should be indexed, and further reviews of the threshold takes place every five years.
While ASFA focused on the impact of the proposed tax on Australian Prudential Regulation Authority regulated superannuation funds its concerns echo those of the SMSF Association, the Institute of Financial Professionals, and Chartered Accountants Australia and New Zealand which have also raised concerns around the TSB calculation, the taxing of unrealised gains and the lack of indexation for the $3 million threshold.
