SMSFA calls on government to stop Better Targeted Superannuation Bill amendments

It noted that legislative drafting errors and deficiencies in the policy design identified during the consultation process remain in the Bills tabled, despite these issues being raised with Treasury through both direct engagement and the formal consultation processes.

“Further, elements of the proposed measures are heavily reliant upon regulations. Those regulations have not been made available at any stage of the consultation process and are yet to be released for consultation,” the submission stated.

This omission, the SMSFA said, affects the ability of both the association and the Parliament to fully consider all elements of the proposed measures including how they will impact government and other defined benefit pension schemes.

The SMSFA said the draft amendments are counter to both horizontal and vertical tax equity principles and could result in a member who has a total super balance of $50 million paying no tax, despite the fund earning taxable earnings per existing tax law, while a member with a total super balance of $3.5 million, who may have no taxable income under the existing tax law, still be liable for taxation under Division 296.

The submission continued that it is “greatly concerning that the introduction of such deep inequities are being considered for inclusion in the Australian taxation system” and reiterated there is a risk that if legislated, this policy will provide a precedent and result in the broader taxation of unrealised gains from other personal investments such as rental property investments.

The SMSFA claimed that representations made by Treasury that the taxation of unrealised gains is already a feature of the country’s tax system are misleading, citing the only example within the Australian taxation system of this is the taxation of capital gains where an individual or a company ceases to be an Australian tax resident.

The SMSFA said when the government first began talking about the $3 million super tax, it said it would affect only a small number of individuals with balances exceeding $50 million and $100 million, even though those individuals had complied with the laws at the time and had “invested in good faith” encouraged by previous governments.

It said despite the originally stated objective, the proposed threshold has shifted from $100 million to $3 million, and combined with a proposal that captures unrealised capital gains, reframes the policy position from one that targets ultra-high-net-worth individuals, to one that starts to capture middle Australia, small business owners and farmers, and has very different policy intentions and outcomes.

With inflation and increasing wages, the SMSFA said the lack of indexation in the proposed bills will impact many more ordinary Australians as it does not consider home ownership status, the combined balances of a couple or the level of wealth held outside of super.

“Of deep concern is that despite being raised previously, the measure will impact some who suffer a total and permanent disability event,” it said.

The role that super savings play in providing security in retirement should not be overlooked, the submission said, and the inclusion of unrealised gains in the measurement of earnings is not representative of actual taxable earnings within the super fund.

Finally, the SMSFA stated that an alternative measurement of earnings that reduces uncertainty and the severity of including unrealised capital gains is needed as a matter of priority.

“We therefore strongly encourage the government to cease the progress of the proposed amendments and instead continue to engage with stakeholders and industry to ensure that the resulting policy and legislation delivers the right outcomes, which are fair and equitable.”