The proposed calculation for taxing super balances above $3 million will throw up unusual outcomes where assets reverse in value, warns the IPA.
With $3m super tax ‘the house always wins’
The proposed method for taxing super balances above $3 million will generate problems because it treats income and unrealised capital gains equally, says IPA general manager, Tony Greco.
He said it also failed to apply the CGT discount to unrealised capital gains and
worst of all, there was no refund if unrealised gains reversed.
The proposed calculation only allowed negative earnings to be carried forward and offset against the extra tax in future tax liabilities.
“So you’re paying tax [on the unrealised gain] first but then in future years if the asset value goes the other way, you don’t get to claw that back,” he told Accountants Daily sister publication SMSF Adviser.
“You have to wait for the investment value to recover before you get to see the benefit of that pre-payment.”
Treasury released a fact sheet explaining how the earnings tax calculation would work for its proposed $3 million threshold last week.
While there was no detail yet on how the measure would work upon the death of a member, Mr Greco said it could potentially mean that if a member died before the asset value recovered, the tax paid was essentially lost.
“If a member dies so does the tax paid. This may be a common scenario if asset values rise and never recover before the member dies.”
Mr Greco said asset values can often take a long time to recover.
“You could buy a property and then they build a freeway next to it. It might take 10 years before that property value recovers,” he said.
“The prepayment of tax based on an unrealised gain is almost like a casino where the house never loses.
“The government is grabbing its money first but doesn’t have to pay it back if it goes the other way. What better outcome from a government perspective could you wish for.”
BGL managing director Ron Lesh labelled the government “super theft” and said it appeared to have been Labor’s intention before the election.
“It is unfair to hard-working Australians who have legally saved for their retirement and have accumulated balances through making contributions and smart investing,” he said.
“And just another example of the Albanese government’s total disregard for the financial well-being of Australians.”
He said an increasing number of people were likely to be affected by the measure over time, with the Financial Services Council putting the figure at 500,000.
“Limiting politicians, public servants and judges’ defined benefit pensions to what can be earned with the current $1.7 million balance transfer cap would be a much better way for the government to raise revenue,” he said.
“Since the Albanese Government came into power, we've already seen huge increases in interest rates, electricity, gas, food and services.
“With this new tax, I'm deeply concerned Labor will soon come after Australians with changes to negative gearing, franking credits, capital gains tax, wealth or inheritance taxes, or even taxing the value of the family home.”