Legislation, SMSFA, Tax

Simpler tax model presented to govt

SMSF Association Superannuation earnings tax Unrealised gains Treasury $3m soft cap tax

The SMSFA has urged Treasury and the government to re-evaluate the taxation of unrealised capital gains within the $3 million soft cap tax.

The SMSF Association (SMSFA) has met with Treasury and government officials to advocate for changes to the proposed superannuation earnings tax, outlining how the use of a deeming rate would create a simpler, more equitable way to calculate liabilities associated with the impost.

SMSFA chief executive Peter Burgess and chairman Scott Hay-Bartlem met with the delegation last week to reiterate concerns outlined in its earlier submissions to Treasury on the “unintended consequences and anomalies” arising from the proposed superannuation earnings tax.

Specifically, the industry body took the opportunity to call for the application of an alternative approach to calculating liabilities associated with the tax that would exclude unrealised capital gains.

“We believe a methodology that calculates a member’s earnings for Division 296 purposes by multiplying the member’s total super balance (TSB) at the end of the previous income year by a deemed earning rate would avoid many of the unintended consequences in the exposure draft legislation,” Burgess said.

“Once a member’s deemed earnings have been calculated, the proposed provisions in the exposure draft legislation would continue to apply to ensure only the proportion of those earnings that relate to the amount above the $3 million threshold would be subject to Division 296 tax.

“We consider a deemed earning rate would be a substantially simpler approach and reduce the compliance burden on regulators and industry alike.

“For instance, this approach would not require the calculation of a member’s adjusted TSB or the recording and carry forward of negative earnings, enabling the removal of numerous sections of the exposure draft legislation.”

He said he hoped the association’s recommendations would be incorporated by Treasury when drafting final tax legislation for the measure, which is anticipated to be unveiled in the coming months.

“Our meetings were very productive. It was clear from our discussions with politicians, including the teals and members of the Senate crossbench, that there was genuine concern about the consequences of taxing unrealised capital gains and not indexing the $3 million threshold,” he said.

“While we expect legislation to be introduced into parliament before the end of 2023, we remain optimistic that parliament will support amendments that remove unintended consequences and improve fairness and equity.”

The SMSFA will hold virtual roundtable discussions on 1-2 November to solicit contributions from members and non-members and discuss the calculation method proposed as part of the measure.

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