SMSF Association Media Release
But a ‘threshold’ preferrable to a ‘hard cap’
The SMSF Association remains opposed to the introduction of a new threshold on superannuation balances, believing it will add further complexity and undermine confidence, Association CEO Peter Burgess says.
“Our preference has always been to have no cap on balances but if the Government has determined on this policy, having a ‘threshold’ with earnings on balances above the cap taxed at a reduced concessional rate would be our preferred option.
“Initial fears of a hard cap targeting certain SMSFs with high balances appear to have thankfully not be realised.
“These initial concerns primarily revolved around the potential for a hard cap to force the removal of super balances above a certain limit – as this risked a raft of seemingly unnecessary complexities and disruption to markets as well as individual retirement plans.
“The approach announced yesterday suggests the main issue the Government is grappling with is not the presence of large balances in the super system, but rather the tax concessions that these balances attract.
“Although we oppose the introduction of another super balance threshold, we are relieved that the Government is seeking to address the issue they have been grappling with without forcing the removal of super benefits or restricting the amount that an individual is permitted to save through the super system.”
Burgess says there are several key areas of uncertainty that will no doubt be clarified as more details come to light, and others that may yet evolve as the consultation process runs its course. For example, it’s unclear how earnings above the threshold will be calculated.
“If it’s based on actual earnings this could prove difficult and expensive for funds to do, particularly where the individual is a member of multiple funds.
“If super funds are required to calculate actual earnings, they will need to identify the proportion of total earnings attributable to accumulation balances below the threshold and the earnings attributable to accumulation balances above the threshold.
“Our preferred approach would be to base it on ‘notional earnings’ and leverage the existing ATO system capabilities. In other words, use a similar approach to the existing excess contributions tax regime.
“This approach would be much simpler and would not require funds to do any calculations of actual earnings.”
Burgess added that it was important to remember that large balances were a legacy issue.
“Today it’s very difficult to accumulate large balances in super because of the contribution caps and the transfer balance cap is designed to remove large balances over time – we just need to give these caps time to work.”