‘Grossly unfair’: Self Managed Super Fund Association wants tax proposal ditched
This would effectively be a wealth tax. Interesting that it hits super funds only. People who manage their own money (with or without advice) would not be affected. Once again it is lower income earners who would get hit. I have never liked super and the fees you have to pay for it. I have always made my own decisions. So I will not be affected
The Self Managed Super Fund Association has called on the federal government to drop its proposal to tax unrealised gains by super funds larger than $3m, describing the approach as “grossly unfair.”
“Our members are very concerned at being taxed on unrealised gains,” SMSF Association chief executive, Peter Burgess, told The Australian.
“It is grossly unfair that self managed super fund members who have balances over $3m are being asked to pay tax on unrealised gains.”
The association has expressed its views in a submission to the federal government this week on the proposal to double the tax from 15 per cent to 30 per cent on earnings from superannuation balances of $3m or more from July 1, 2025.
Concern is rising at the proposal among small business and farmers groups at the government’s plan to move into unprecedented waters in tax policy in Australia, by seeking to levy taxes on unrealised gains — a move which could pave the way for it being applied to other sectors such as shares and properties, if it is given the go ahead with regards to superannuation.
The proposed higher tax rate of 30 per cent will be levied on the increase in the total superannuation fund balance over $3m over the year, and not the actual earnings of the fund from dividends and asset sales as is the case with the tax system.
The federal government has estimated that the proposal could bring in an extra $2bn a year in the first full year it is in operation.
The new tax on superannuation was announced this year by the Treasurer Jim Chalmers despite an assurance from then Opposition leader, Anthony Albanese, before last year’s election that his party had no plans at the time to introduce new taxes on superannuation.
Submissions on the proposal, including the radical new approach to levying the higher tax rate on unrealised gains, closed this week.
Mr Burgess said some 75 per cent of the people who would be affected by the changes were those with self managed super funds.
He said the approach of levying tax on unrealised gains “could cause some significant liquidity issues” for super funds.
He said people who owned properties, including farms and business premises, through their superannuation funds were now realising the impact of the proposal if their properties or funds were worth more than $3m.
Some could be forced to sell property or farms if their value rose during the year.
Mr Burgess said the Treasury’s argument for using the much broader base of unrealised gains, rather than realised gains which is the basis for all other tax policy, was that it was much simpler to calculate the increase in value of a fund than to calculate total realised returns for the amounts over $3m.
He said the association had been told that some large super funds did not have the capacity to calculate the earnings attributable to specific member funds over $3m.
But he said other large funds did have that capacity and all self managed super funds could also do it.
He said it was unfair to penalise people with self managed super funds because of the problems of a much smaller number of people who had balances of over $3m in APRA regulated super funds.
He said the association was calling on the federal government to drop the approach of levying the tax on unrealised gains altogether because of its unfairness.
If this was a problem for some large super funds, he said funds should be given the option on which method to use – either the increase in the total super balance or the actual realised gains during the year.
“It seems that we are designing an approach to taxation based on a very small number of people (who have balances over $3m and the funds can’t identify the earnings by member.)
Mr Burgess said the association intended to “come out swinging” in expressing its concerns about the unfair impact of taxing unrealised gains on people with self managed super funds.
“The taxing of unrealised gains is unprecedented in Australia as a method of raising tax,” HLB Mann Judd’s director of superannuation, Andrew Yee, told The Australian.
“The new tax is asset based rather than the traditional model of taxing of income and this has created the most controversy,” he said.
“It is not fair in terms of it only being applied to individuals with a large amount of superannuation assets with the majority of those assets being held in self managed super funds.”
“This taxing model is not being applied to any other individuals or other taxing entities.
“This form of taxing could be applied to other assets in the future,” he said.
Mr Yee said his superannuation clients who were affected were dealing with “the initial shock of an extra tax on super” and were now awaiting the details.
“Those clients that are considering planning for the new tax are thinking of reducing their potential exposure to the tax by moving super assets to non-super entities, or by no longer growing their super benefits by reducing or not maximising contributions,” he said.
He said the clients most worried about the new tax were those people who had built up large super balances over many years, the majority of whom are now in retirement phase drawing out a pension.
“Those clients with a significant portion of the SMSF in property assets (for example an office block or commercial building which is related or leased to the family business) are concerned about the tax and having to consider whether to unwind these holdings and the consequences of doing so,” he said.