The proposed Division 296 tax will impact more people than originally intended and appears to be driven by efforts to repair the budget rather than creating a better retirement savings system, a major accounting body has claimed.
CPA Australia superannuation lead Richard Webb said the lack of indexation in the tax ignored its potential to impact more people than is currently being stated and was contrary to laws designed to preserve the primacy of retirement savings.
“Three million dollars will not represent anywhere near the spending power it has today,” Webb stated, noting the Division 296 tax regime will not be a fair system for future generations.
“Even an average earner will go on to have more than $3 million in superannuation by the time they retire. It’s simply inconceivable to think that a young Australian today will see a proportion of their retirement savings taxed at a rate of 30 per cent.
“Policy changes of this nature should be consistent with the legislated objective of superannuation. This measure appears to be driven primarily by budget repair, rather than a comprehensive approach to retirement savings policy.”
He added the expansion in number of those impacted by the tax was why it was wrong for opposition to the impost to be portrayed as older Australians protecting their wealth.
“The principal device to manage bracket creep is indexation. However, the government’s proposal to not index the $3 million cap has thrown the arbitrary application of indexation into stark relief,” he said.
“The government cannot underestimate the impact of inflation on superannuation. The cumulative effect of inflation means that a dollar today has the same purchasing power as approximately $0.34 in 1985.
“This reduction highlights the necessity of preserving the spending power of superannuation savings over one’s working life.”
Bracket creep in the taxation system outside of superannuation was eroding personal finances and to allow it take place with retirement savings ran counter to the principles of the Australian tax system, he noted.
He also reiterated CPA Australia’s opposition to the taxing of unrealised gains within superannuation funds, noting Australia’s tax system is based on the principle tax is paid on income when it is received.
“Taxing unrealised capital gains would mean taxing people on the paper profits they haven’t yet accessed, which is not only inequitable, but also administratively burdensome,” he said.
“If this precedent is set, where are the limits?
“Opening this Pandora’s box could ultimately lead to the imposition of capital gains tax on other assets and investments, even if today’s policymakers insist otherwise.
“It is not fair, and not healthy for the economy, if individuals are pushed into selling their investments to avoid paying tax on a hypothetical profit.”
