Diplomacy needed to extract marginal super tax change
ANALYSIS
Few people in the financial services sector believe that the taxation of unrealised capital gains via the Government’s $3 million superannuation tax concession cap legislation is a good idea but the 3 may election result removed their political leverage.
Notwithstanding the dramatic headlines of self-managed superannuation fund (SMSF) trustees rushing to sell assets to avoid the implications of the tax, and the warnings of a dearth of venture capital, the lobbying objective should now be to minimise the damage at the margins.
And sitting on those margins is the possibility of indexation – something which has already gained some positive acknowledgment from the Senate cross-bench.
The bottom line is that with the Australian Labor Party (ALP) having handsomely won the election, the Treasurer, Jim Chalmers is not for turning on the legislation which started life as the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and which has already passed the House of Representatives.
The timing of the election and the failure of the Government to navigate the legislation through the Senate before the Parliament was prorogued means that it will have to restart the legislative process but, if anything, it will be starting from a stronger position than before.
Notwithstanding the restart and hits strengthened position, there exists room for marginal change which is what should now be sought.
All of the arguments currently being ventilated about the legislation were rammed home to the Government by the major industry stakeholders via a Treasury consultation in October, 2023, which received 70 submissions and resulted in some minor refinement particularly with respect to Federal judges.
The SMSF Association which has been front and centre in its unbroken opposition to the legislation used its submission to the Treasury consultation to specifically raise the taxation of unrealised capital gains, noting that, as a result, it “utterly reframes the policy position, from one that targets ultra-high net wealth individuals, to one that starts to capture elements of middle Australia, small business owners and farmers. It has very different policy intentions and outcomes”.
“The lack of indexation of the threshold will over time, because of inflation and increasing wages (and therefore increased compulsory superannuation guarantee payments), see this measure impact many more ordinary Australians,” the association said nearly three years’ ago.
Last week, SMSF Association chief executive, Peter Burgess was referencing the need for the Government to “address catastrophic flaws in its proposed super tax” noting that a “critical flaw in the proposed tax is its calculation of investment earnings, which inexplicably includes unrealised capital gains – penalising SMSF members for paper profits that may never materialise”.
The reality in the new Senate is that the Government and the Greens can combine to carry the legislation, thus diplomacy may be the best avenue for extracting marginal change.
Firstly 34% is not mandate; secondly, they did not elevate it as an election proposal and spoke about it even less than the Coalition, as difficult as that must have been !!!!!
In short, they did not put this proposal, which was repeatedly rejected during the life of the previous parliament, to the people as proposed government policy.
Why can politicians not see that there is a simple way to more appropriately “progressively” tax superannuation “deemed excessive”.
A quick explanation based on the proposed $3 million upper threshold:
(a) determine an average income yield, say 6.66% per annum which converts to $200,000 fund income (including realised capital gains if applicable).
(b) funds with an annual taxable income of less than $200,000 continue to pay 15%, but funds with income exceeding $200,000 pay a higher rate on the income in excess of $200,000.
(c) the higher rate could be 20%, 25% or 30%, this is up to the parliament to decide.
(d) the 50% CGT concession should also apply! Why – because this has never been a true concession, it is just a simplification of the original “indexed cost base” so that “nominal” value changes due to inflation were not taxed. It simply estimates the “real capital gain” to be 50% of the total, yes arbitrary but simple to understand and apply.
Why not just enforce compulsory drawdown rather than a complicateed income tax which means the money exits the super system and would ultimately either be consumed or invested and taxed at non super rates.
Industry Super will bring their Bikie mates and baseball bats.
That’s all the diplomacy Industry Super & the ALP will show.
Why is it not major news that the only reason to use the Unrealised Capital Gains tax is because Industry Supers systems are old and can’t work out Income from capital growth.
Surely this is Regulatory Capture Corruption yet again.
Why is that not main stream news ?
Media to scared to loose the Industry Super advert revenue that is about to go up up and away with Backpacker sales on tap.