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The government should consider simpler and more effective solutions to the current policy proposal for the $3 million super tax, says CA ANZ.
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CA ANZ proposes simpler solutions to $3m super tax
30 October 2023
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10 minute read
CA ANZ has outlined that while it remains opposed to imposing an additional tax on earnings for member balances above $3 million in super, there are alternative policy solutions the government could explore.
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One of these options is to instead impose an additional 15 per cent tax on all taxable component withdrawals for those with a total super balance greater than $3 million, CA ANZ said in a recent submission.
“An alternative to the complex calculation methodology proposed in the Exposure Draft would be to tax the proportion of the taxable component of any lump sum benefit above $3 million at 15 per cent for lump sum withdrawals,” it said.
“(Proportionality it could be calculated using a methodology similar to that in the Exposure Draft in proposed section 296-35.) This will mean that total tax paid on the taxable component will be 30% - 15% from fund earnings tax and 15% upon exit from the superannuation system.”
Pension payments would remain exempt from the tax, however. Those in receipt of structured settlement contributions or personal injury benefits16 or are receiving or have received permanent incapacity benefits would be exempt.
CA ANZ said this would be a much simpler solution.
“This would mean that the tax would apply proportionately as already explained to lump sums paid to individuals of all ages including those aged at least 60, all lump sum death benefits, terminal illness benefits and lump sums above the tax-free low rate cap for those aged under 60,” the accounting body said.
“However lump sum death benefits paid to non-dependants would not face an additional 15% tax on top of the 15% tax that already applies to all of the taxable component paid out for these types of benefit payments.”
CA ANZ said another option for improving the current policy is to allow superannuation funds to determine allocated after-tax earnings for each member and report that amount to the ATO.
“Some superannuation funds will not wish to perform this calculation so there would need to be an option of allowing superannuation funds to use the government’s Exposure Draft calculation methodology or the after-tax earnings methodology,” it said.
Alternatively, a deemed earning rate for superannuation fund earnings could be applied with the deemed earning rate determined by the Australian Government Actuary and applying to earnings on revenue account only, CA ANZ.
The government could also consider applying a consistent tax rate in superannuation for both accumulation and pension monies.
The submission also called for the government to consider allowing members with balances above $3 million that have not yet met a condition of release to be allowed to withdraw their balances.
“We note that this policy will apply to all individuals with a TSB of at least $3 million including those who have not retired and have not met a relevant Condition of Release such as reaching preservation age and being permanently retired or being aged at least 65,” said CA ANZ
“We believe those with larger superannuation account balances are typically older and fully retired. However, there will currently be a small cohort of individuals who are yet to retire who have a TSB of at least $3 million and who are not in receipt of structured settlement or personal injury order contributions or total and permanent disablement benefits.
These individuals, and other individuals in a similar position in future, should be given permission to withdraw their superannuation balance so that their TSB falls below $3 million over a 12-month period, or longer if the ATO approves, the accounting body said.
“Such withdrawals should be tax-free and a super fund should not incur Capital Gains Tax when it disposes of any assets in order to make this benefit payment,” the submission stated.
CA ANZ also stated that if the government intends to tax unrealised gains then for consistency it should also provide a tax refund for unrealised losses.
Under the current policy proposal market losses can only be carried forward.
“It is possible for assets to increase considerably in value and then to fall sharply,” it said.
“Under the current policy design some investors may have to pay this additional tax because of large market value increases only to find that they then receive a carried forward loss when the value of the underlying asset falls but never recovers to its previous level.”
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