The SMSF Association has stated if the government amends the method to calculate the amount of earnings that would be subject to the proposed Division 296 tax, it would accept the use of a deeming rate as it would better deal with the issue of unrealised capital gains.
Assocation chief executive Peter Burgess said the SMSF sector will continue to maintain its view the tax should be calculated using actual taxable earnings, but recognised there were problems for Australian Prudential Regulation Authority-regulated funds using this approach and a middle ground was to use deeming as a proxy.
Speaking at the recent SMSF Association Technical Summit 2024 in Sydney, Burgess told attendees the alternative to calculating earnings using the annual variance in total super balances was using the 90-day bank bill rate.
“The reason we have put forward the 90-day bank bill rate as a proxy for actual taxable earnings is because it’s used elsewhere in super legislation to estimate earnings and we’ve seen it used in various places,” he said, adding it was used to calculate excess transfer balance account earnings, excess non-concessional contributions associated earnings and the excess concessional contribution charge.
He noted deeming can sometimes generate higher rates of income than those actually earned, but modelling carried out by Accurium for the association using the 90-day bank bill rate in comparison to the government’ s proposed approach and back tested to 2008 found SMSF members would pay less tax over short and long periods of time.
“We would not oppose it if the government said they don’t like the fact that SMSFs are able to use taxable earnings because that will give them an advantage and they prefer deeming,” he said.
“We won’t oppose the use of deeming as long as it’s at the 90-day bank bill rate.
“We do not support the use of deeming if it’s a higher rate and that’s a risk because the government may say we’ll give you deeming, but it’s at a rate higher than the 90-day bank bill, which defeats the purpose of it being a proxy for actual taxable earnings.
“My question to government and members of the Senate crossbench is: ‘Are you willing to vote for amendments which uphold the core fundamentals of our tax system – fairness, simplicity, equity?’”
