Government urged to re-open $3 million super tax threshold discussions

Media Releases

Government urged to re-open $3 million super tax threshold discussions

SMSF Association Media Release

The SMSF Association is urging the Government to re-open industry consultation on the proposed $3 million superannuation tax threshold that was included in tonight’s Federal Budget.

SMSF Association CEO Peter Burgess says: “Further consultation about this new tax is imperative so that the full impact on the small business and farming communities and others can be properly considered.

“The previous consultation phase was only 18 days, including Easter, and that was simply insufficient time for the industry to fully identify all the issues. We understood the need to finalise things for the Budget, but that should not come at the expense of rushing important legislation with unintended consequences.”

The new tax, which aims to ensure generous superannuation concessions are better targeted and sustainable, will bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million.

The Budget announcement follows the release of the Government’s Fact Sheet and Consultation Paper on the proposed measure.

Burgess says: “If the Government proceeds with the taxation of unrealised gains as proposed in their consultation paper released in late March, given many small business premises and farms are owned by SMSFs, this new tax could drive up their costs substantially at a time of unprecedented cost of living increases. Therefore, it’s important the full impact on taxpayers, including small business owners and primary producers, is fully explored.

“We stand by our position that using a member’s total super balance to calculate earnings is neither simple nor fair. By definition, a member’s total super balance includes unrealised gains and a growing list of items that will need to be excluded to ensure ‘earnings’ for the purposes of this new tax are not overstated. This methodology discriminates against those funds who can identify and report to the ATO actual taxable earnings attributable to each member.”

Burgess says the budget papers also included a small adjustment to the fix to the non-arm’s length expenditure (NALE) rules for SMSFs released by Treasury earlier this year.

“Rather than a multiplication factor of five being applied to the expense shortfall amount, two times the general expense will be taxed as non-arm’s length income (NALI).

“Although this proposal is an improvement, a factor-based approach is neither a practical nor desirable solution for the sector. It will require SMSF trustees to determine if a general expense has been undercharged and by how much.

“This may sound like a simple task, but the reality is in a dynamic market such as the SMSF sector there can be significant variation in the services provided, particularly when it involves related entities, so determining a ‘market rate’ can be difficult, costly, and often subjective.

“It remains our view that the 2019 amendments to the NALI rules was overreach and the mischief they were intended to address has already been addressed by previous ATO guidance and tax determinations.”