SMSF Association: taxing unrealised capital gains is a ‘concern’

Oksana Patron

27 July 2023

The SMSF Association has said that taxing unrealised capital gains is a ‘grave concern’ and called for a less costly approach to the Federal Government’s proposed new tax on superannuation balances exceeding $3 million.

SMSF Association chief executive, Peter Burgess, said that the organisation reiterated its ‘staunch opposition’ to the taxation of unrealised capital gains.

“The proposed approach of including unrealised capital gains in the calculation of earnings has been widely criticised,” Burgess told the Technical Summit on the Gold Coast this morning, titled “SMSF Legislative Update: What you need to know”.

“But it’s not only the inclusion of unrealised gains that has us concerned; there are many other items that will need to be excluded to ensure the ‘earnings’ that will be subject to this new tax are not unfairly overstated. This is what will make this whole new regime so complex and costly to implement and run.”

He also criticised the complexities of this approach, outlined in the consultation paper which aim to reduce the impact of this new tax in certain scenarios, calling for a far simpler approach and excluding members who did not start and finish the income year with a balance in excess of $3 from this new tax.

According to his alternative approach, this would not involve taxing unrealised capital gains or the ATO needing to adjust reported data to avoid inappropriate outcomes.

“It is not difficult for the SMSFs and some APRA funds to identify and report actual taxable earnings at the member level. This is the most appropriate measure of earnings for the purposes of this new tax,” he said.

“While appreciating not all APRA funds can report this data, their default position should be using a deemed earning rate. It’s not a new concept and is used extensively to assess entitlements to social security pensions and is also used in the super industry – for example to calculate earnings on excess pension balances and to determine amounts that can be withdrawn under the First Home Super Scheme.”

Burgess added the SMSF Association acknowledged the Government was unlikely to change their mind about the $3m threshold but it said it remained hopeful the Government would change the proposed calculation of earnings for the purposes of this new tax.