Calls for changes to the method by which the Division 296 tax will be calculated have continued, with a group of industry bodies recommending the process be reopened to further consultation to make it more consistent with established tax practice.
The Joint Associations Working Group (JAWG) said “crucial amendments” had to be made to the Better Targeted Superannuation Concessions Bill “to avoid significant unintended consequences and unfair outcomes for consumers, small businesses, advisers and the government”.
The 11 industry bodies reiterated concerns a number of them had expressed individually around the taxation of unrealised capital gains, the absence of indexation of the $3 million threshold, the lack of clarity in regards to the treatment of members in defined benefit funds and the impact of material increases to liquidity requirements for funds holding large and unlisted assets.
“Applying different tax rates on capital gains, both notional and realised, is unnecessarily confusing and complicated,” the JAWG said in a joint statement.
“The JAWG has broad industry concerns about the consequences of this approach, including both the impact on small business and primary producers who hold their small business premise and primary production land in an SMSF and the constraints of applying these provisions in large funds.
“There are other ways of reducing the tax concessions available to individuals with large superannuation balances that do not involve taxing unrealised capital gains.
“We recommend the removal of schedules 1 to 3 from the bill to enable more holistic consultation on measures which achieve the government’s objective of achieving greater equity and which are consistent with existing taxation principles.”
The working group pointed out the problem in using unrealised capital gains to calculate the tax was heightened by the nature of capital markets, which could go through periods of strong activity and sharp decline, resulting in some super fund members being taxed on investments that make an overall loss when sold without any recourse to recover tax already paid.
“Including unrealised capital gains in the calculation of earnings means an individual’s year-on-year tax liability will be directly related to the performance of investment markets, adding to the unpredictability and making liquidity management extremely difficult,” it said.
“The JAWG acknowledges the constraints and limitations faced by some funds in tracking actual taxable earnings allocated to a member.
“However, one alternative could be the use of an earnings rate that is a close proxy for actual taxable earnings. The 90-day bank bill rate is used in other areas of the superannuation legislation to approximate earnings.”
The JAWG is comprised of the Boutique Financial Planning Principals Association, Chartered Accountants Australia and New Zealand, CPA Australia, Financial Advice Association of Australia, Financial Services Council, Financial Services Institute of Australasia, Stockbrokers and Investment Advisers Association, Institute of Public Accountants, Licensee Leadership Forum, SMSF Association and Advisers Association.
