Legislation, SMSFA, Superannuation, Tax

$3m soft cap issues ignored

$3m soft cap tax Superannuation earnings tax Division 296 tax SMSF Association

The proposed bill to implement the $3 million soft cap tax has been sent to the Senate without considering its impacts in several critical areas.

The SMSF Association (SMSFA) has expressed concerns about several specific issues Treasury appears to have overlooked in its efforts to legislate the proposed superannuation earnings tax on member balances over $3 million.

Despite raising a number of issues with the draft bill during the consultation phase, SMSFA head of policy and advocacy Tracey Scotchbrook noted they were not taken up when the finalised bill was tabled in parliament on 30 November.

Scotchbrook said the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, which was referred to the Senate Economics Legislation Committee on 7 December, has overlooked the specific concerns emphasised by the association.

“The exposure draft legislation contained a number of drafting errors and anomalies and these were pointed out during the consultation phase. Disappointingly, we have seen these emulated within this bill that has been tabled and it looks almost like we’ve had a copy and paste situation,” Scotchbrook told attendees at an SMSFA policy update recently.

“The concern is that this has perhaps been rushed to get it through parliament and it’s disappointing to see issues like that come through because these will have consequences.”

Specifically, she highlighted the proposed bill’s impacts on family law settlements in the event a spouse passes away and when an SMSF trustee suffers an incapacity event as areas the industry body would like to see reconsidered.

“I think anybody who’s done any work around family law settlements, it’s really challenging to get the people to the table to get a settlement agreed to dealing with the tax issues,” she said.

“This [proposed tax] is going to add more complexity and a high level of uncertainty around forecasting what these taxes will be like because the person who foregoes a benefit to roll over to a spouse will have that amount added back as a part of the earnings calculation, whereas the recipient would have it excluded under the contributions adjustment.

“Someone who receives a reversionary pension has no time to readjust themselves and indeed any pension payments that they make, including from their own pension prior to them receiving the reversionary pension, that’s then caused them to have to exceed the $3 million cap at the end of the financial year are all going to be captured. That’s not a good outcome.

“[There’s also] policy misalignment around disability benefits. Anybody who’s drawing down on super because they’ve had a disability event or indeed they’ve received insurance proceeds is afforded no [exemption].

“So this really is a solution looking for a problem and in its current form it is not good policy.”

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