The federal government’s ongoing claims the Division 296 tax will only impact a small subset of superannuation fund members overlooks the flow-on effect to small businesses, primary producers and investors in smaller companies, the SMSF Association has stated.
Association chief executive Peter Burgess made the call in a blog post released today in which he said the claims of a limited impact of the tax were short-sighted and overlooked the connection between affected superannuants and other parts of the economy.
“Business owners and primary producers have, for many years, held their business premises or primary production land in an SMSF – to the tune of $100 billion. It has served them and the country well by spurring employment growth, investment and innovation,” Burgess said.
“A deeply flawed feature of the proposed tax is its artificial construction and inflated measure of investment earnings that will be subject to this tax – a measure that inexplicably includes not just actual investment earnings, but unrealised capital gains.”
Burgess added the taxing of unrealised gains would not only affect superannuants with balances over $3 million, but would impede economic growth where the Division 296 tax payable was greater than the investment earnings allocated to the superannuant as the shortfall would come from cash reserves or redeeming investments to provide liquidity to pay the tax.
“Cash flow is the lifeblood of small businesses and primary producers. We estimate about 17,000 SMSFs own a business premise, mostly family businesses and primary producers, [and they] will be directly impacted by this new tax. This number will only grow over time,” he said.
“Industry research also estimates that had this tax been in place for the 2023 financial year, the average additional tax payable by these superannuants would have been $50,000 – hardly a modest tax increase for a family business or primary producer.”
He pointed out early-stage funding in healthcare, information technology, agriculture technology, artificial intelligence and biomedical research would also be impacted as many superannuants would be unwilling to commit capital while being financially liable for an unrealised capital gain that may be years away from being realised or in some case never realised at all.
“Australia has always punched well above its weight in medical research and innovation. But this can only continue with funding — and at the seed level, that means, in no small part, SMSF money. This pool of capital, which has served this country well, deserves to be nurtured — not taxed at a higher rate,” he said.
“It is inconceivable that during a period of stagnant economic growth, the government is pursuing a contentious new tax on sectors crucial for driving productivity and innovation, while risking political capital on a policy with unintended consequences that could set a dangerous precedent for future tax reform.”
