The indexation that will apply to the new Division 296 tax on superannuation earnings will limit its scope and relevance and has tied them to the longevity of those who sit near the $3 million threshold, a technical expert has noted.
Colonial First State head of technical services Craig Day said the lack of indexation of the $3 million threshold under the first iteration of the new impost was widely criticised as it would make more people subject to the tax over time, but the bills that passed through parliament earlier this week included indexation of the $3 million and $10 million thresholds.
“The government has addressed that [criticism] and what they will now do is index those thresholds in increments of $150,000 for the $3 million threshold and $500,000 for the $10 million threshold,” Day said during an adviser briefing yesterday.
“Now, by doing that, they have set a time limit for these tax changes.
“Why do I say that? If we think about our clients that have a superannuation balance above $3 million, what sort of age are they? More than likely they are probably well into their 60s or probably well into their 70s.
“What’s going to happen in 10 to 15 years’ time is, unfortunately, some of those clients are no longer going to be around. They will have passed away, and depending on their circumstances, a lot of their benefits will leave the superannuation system.
“As a result, because the thresholds will be indexing up, we are unlikely to get a large amount of new people coming in and being subject to the tax than we currently have.
“As those older members pass away, it may be the revenue being generated from this tax starts to fall and collapse.
“So, at some point in the future, probably within that next 10 to 15 years, the government may review this tax and say it’s not worth continuing to administer because it doesn’t raise any significant revenue, and they may remove it also.”
