Farmers, small business ‘to bear brunt of $3m super tax’
Those with illiquid assets such as premises or land in super could struggle to pay the tax, the SMSF Association says.
Farmers and small business owners with land or business premises owned by their SMSF will be the biggest losers from the $3 million super tax, the SMSF Association (SMSFA) says.
CEO Peter Burgess said its research showed these two “important business communities” were most likely to be adversely affected by the proposed legislation thanks to its tax on unrealised capital gains.
In its submission on the Division 296 measure, which adds an extra 15 per cent tax on total super balances (TSBs) above $3 million, the SMSFA outlined examples that resulted in “overtaxation” and said individuals would struggle to pay the tax if the bulk of their super assets were illiquid.
“In our view, it is completely unreasonable to expect trustees to envisage future tax changes when formulating the fund’s investment strategy – particularly of the magnitude of the Division 296 tax,” it said.
Its submission said the proposed measures “will add further complexity, red tape, cost, and unintended outcomes to what is an already complex superannuation legislative framework”.
“These unintended consequences are exactly the reasons why we don’t tax unrealised capital gains, and why no other country in the world taxes unrealised capital gains – it involves taxing individuals on funds they haven’t received or may never receive,” Mr Burgess said.
Among unintended consequences of the measure was a failure to “claw back” super tax concessions for individuals with very large super balances – a primary driver behind Division 296 – where a TSB falls.
It cited an example where someone with a TSB of $20 million at the start of the year earned $2 million taxed at 15 per cent. If the TSB fell by $2 million by year end, its Division 296 liability would be nil despite the large balance and significant earnings.
“To ensure this measure achieves its stated objectives, while still being fair and equitable in its application across the entire superannuation sector, it is imperative that the measure of ‘earnings’ mirrors, as closely as possible, the traditional measure of taxable earnings.”
It said the proposed changes to super tax were sufficiently significant and complex to require a detailed review and a longer consultation period.
The SMSFA urged the government to put the proposed bill on hold to engage further with stakeholders.
About the author
