Legislation, SMSFA

Div 296 tax a flawed, rushed policy

Unrealised capital gains SMSF Association Division 296 tax

Government plans to introduce a superannuation earnings tax for member balances over $3 million have been rushed and remain flawed despite industry feedback calling for change.

The SMSF Association (SMSFA) has continued to push for changes to the proposed Division 296 tax, telling a Senate committee it is a rushed policy that cannot be fully assessed without accompanying regulations, which have not been released, and will depart from established tax practice in Australia.

The association made the claims in its submission to the Senate Economics Legislation Committee inquiry into the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023.

Drawing on its engagement with government and Treasury since the tax was announced early in 2023, the SMSFA stated that while the changes in the bills were significant, “this is a policy that has been rushed and has not considered any alternative design models in the consultation process”.

“Legislative drafting errors and deficiencies in the policy design identified during the consultation process remain in the bills tabled. This is despite these issues being raised with Treasury through both direct engagement and the formal consultation processes,” the submission stated.

The industry body also highlighted the difficulty in fully assessing the bills without the regulations referenced within them.

“Elements of the proposed measures are heavily reliant upon regulations. Those regulations have not been made available at any stage of the consultation process and are yet to be released for consultation,” it said.

“This affects both our and the parliament’s ability to fully consider all elements of these proposed measures.”

The submission also pushed back on representations by Treasury that the taxation of unrealised gains, which will occur under the proposed superannuation earnings tax, was already part of the tax system, and noted such a move would be an unprecedented shift from current tax policy.

“The only example within the Australian taxation system is the taxation of capital gains where an individual or a company ceases to be an Australian tax resident,” it said.

“This is a one-off event triggered by the change in tax residency status. It is not a tax applied year on year.

“Taxation on unrealised capital gains is rare among OECD countries and rarer still in OECD pension systems.

“Given both the benchmarking to other OECD nations and Australia’s own economic history, what is proposed is a radical departure from existing taxation policy, with potentially far broader consequences than just those outlined by Treasury.”

As such, the SMSFA repeated calls made during the consultation process for an alternative measurement of earnings that does not include unrealised capital gains and for the passage of the bills to be halted as that method is negotiated with stakeholders to produce fair and equitable outcomes.

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