The Institute of Public Accountants (IPA) has called on the government to reconsider its plans to retain the taxing of unrealised gains in the proposed Division 296 impost on superannuation, noting it is a shift from established tax principles and practices.
IPA tax and super adviser Letty Chen said the professional body objected to the impost due to the inclusion of unrealised capital gains in the calculation of earnings, no indexation of the $3 million threshold, the absence of a refund mechanism for negative earnings and the lack of optionality for funds to use established tax principles to calculate earnings on a member-by-member basis.
“A fundamental tenet of Australian tax law is that income and gains should only be taxed once they’ve been earned or realised,” Chen said.
“This measure would tax unrealised gains, which will create serious cash-flow issues for taxpayers, especially for small business owners and farmers who hold illiquid assets like real property in their self-managed super funds.”
The IPA stated that while it supported reforms that made superannuation concessions more equitable, the Division 296 tax will create inequitable outcomes.
As such, it called for changes that would limit the tax to realised earnings and capital gains, the inclusion of transitional rules that would allow affected taxpayers to restructure their affairs without penalty and the indexation of the $3 million threshold annually to account for inflation to ensure the impost was fair and equitable over time.
“For someone in their 20s or 30s today, $3 million when they near retirement might be equal to a fraction of that amount in today’s money due to inflation,” Chen said.
“The threshold must be indexed. Superannuation is designed for long-term saving and policy should reflect long-term impacts and provide certainty.”
“Ultimately, reform of superannuation tax concessions must be considered holistically. Piecemeal measures such as the Division 296 tax introduce other inequities and greater complexity. Poorly considered changes will undermine confidence in superannuation.”
Opposition to the Division 296 tax has been raised by the SMSF Association, Institute of Financial Professionals Australia and a cohort of industry bodies on a number of occasions since the measure was first announced in February 2023.
