Taxing unrealised capital gains a grave concern

Media Releases

Taxing unrealised capital gains a grave concern

SMSF Association Media Release

The SMSF Association has renewed its call for a more equitable and less costly approach to the Federal Government’s proposed new tax on superannuation balances exceeding $3 million.

With the draft legislation imminent, SMSF Association CEO Peter Burgess used his opening session at its Technical Summit on the Gold Coast this morning, titled SMSF Legislative Update: What you need to know, to reiterate the organisation’s 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.

“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.”

While acknowledging the measures outlined in the consultation paper which aim to reduce the impact of this new tax in certain scenarios, Burgess lamented the complexities of this approach saying a far simpler approach would be to excluded members who don’t start and finish the income year with a balance in excess of $3 from this new tax.

Burgess took the opportunity to outline an alternative approach that 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.

“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the super industry – for example to calculate earnings on excess pension balances and to determine amounts that can be withdrawn under the First Home Super Scheme.”

“It’s important to remember that the majority of people impacted by these new tax thresholds are not members of APRA funds, so the model should be designed with SMSFs front and centre.”

We acknowledge the Government is unlikely to change their mind about the $3m threshold but we remain hopeful the Government will change the proposed calculation of earnings for the purposes of this new tax.

The SMSF Technical Summit continues on the Gold Coast with an agenda highlighting all issues confronting SMSF specialists, from ATO rulings, the rising cost of living to technological advancements such as Chat GPT impacting on businesses and clients.

Closing day one of the Summit, a gala dinner to celebrate 20 years of the Association and members working towards a better superannuation sector is taking place.