$3m super tax ups flows to ETFs

The Government’s insistence on pressing ahead with its $3 million superannuation tax concession cap and taxing unrealised capital gains is already seeing a shift towards exchange traded funds (ETFs), according to Stockspot chief executive, Chris Brycki.

Amid a continuing escalation in rhetoric opposing the Government’s intended move, Brycki has joined those claiming the implications are much broader than those being suggested by the Treasury.

He said two key design features of the policy- taxing unrealised gains and not indexing the $3 million threshold – may catch many Australians off guard over the long term.

“This isn’t just a tax on the wealthy. It’s a tax on responsible savers. And over time, more Australians in their 30s and 40s will get pulled into the net,” Brycki said.

As well, he suggested that members of larger, Australian Prudential Regulation Authority funds would not necessary be immune to the new regime.

Brycki claimed large industry and retail funds might also face challenges under the new rules. Since most use pooled unit pricing, a higher tax burden on large-balance members could flow through to everyone.

“When tax is calculated at a fund level, and not individually, it’s the smaller members who may end up bearing some of the cost,” he said. “If a fund pays more tax or is forced to sell assets to meet redemptions, it affects the unit price for every member — not just those with more than $3 million.”

“This is one of the unintended consequences of a policy that sounds simple but has complex knock-on effects,” Brycki said.

He said Stockspot was already witnessing SMSF trustees rethinking their strategies with many moving away from unlisted or hard-to-value assets and into listed ETFs which would be easier to manage under the new framework.

“We’ve always believed ETFs are the best option for super – they’re low cost, transparent and priced daily,” said Brycki. “Now those advantages matter more than ever.”

Major accounting body, CPA Australia has continued its warnings around the implications of taxing unrealised capital gains, warning that it may represent the thin end of a wedge.

CPA Australia superannuation lead, Richard Webb warned of the setting of a precedent.

“If this precedent is set, where are the limits? Opening this Pandora’s Box could ultimately lead to the imposition of capital gains tax on other assets and investments, even if today’s policymakers insist otherwise. It is not fair, and not healthy for the economy, if individuals are pushed into selling their investments to avoid paying tax on a hypothetical profit.”