SMSFA stands against new tax as debate looms

“For almost 40 years Australia’s tax system has clearly delineated between income and capital gains tax, with the latter only payable on the realisation of an asset,” he said.

“This new tax turns existing tax policy on its head by treating the increase in the price of an asset as income received during the income year. Furthermore, when the asset is eventually sold, the capital gain may be subject to capital gains tax, subjecting taxpayers to double taxation.”

In its submission to the Senate Standing Committee on Economics about the new tax, the SMSFA called claims by Treasury that the taxation of unrealised gains was already a feature of the tax system as “somewhat misleading”. The only example is the taxation of capital gains on investments where an individual or company ceases to be an Australian tax resident.

The submission noted that although a sound policy foundation existed for the tax to be applied in that manner, it was triggered by a one-off change in tax residency status and was not a tax applied year on year. As such, it was not a representative case study and not a case that supported the taxation of unrealised capital gains now being proposed.

Burgess said there was a good reason why historically the tax system only taxes a capital gain at the time the asset was sold and to impose tax annually on the “paper increase” in the value of an asset would involve taxing investors on amounts they haven’t received, and require them to call on cash reserves to pay the tax.

He said a complex system of tax credits and carried forward unrealised capital losses would be required to ensure equity.

“This should send a shiver down the spine of all investors. If allowed to be implemented as proposed it would set a dangerous precedent for tax change in this country,” he said.

“It is not difficult to see how this approach could be applied to claw back perceived inequities in other areas of the tax system, including negative gearing. It could be one way the government tempers the tax benefits without amending the rules that underpin negative gearing.”

He added that research undertaken by the University of Adelaide last year modelled the financial impact of the new tax and it was recommended the legislature should carefully reconsider the implications of this proposal.

“We are always open to work with government on measures to improve the superannuation system but making it more complex and costly to administer by purporting to address inequities in one area while introducing inequities in another, is not the right approach,” Burgess said.

“By any measure, taxing individuals on amounts they have not received, or may never receive, is a radical departure from existing tax principles and a crude method of addressing super wealth and wealth inequality. It is important, not only for those who will be unfairly impacted by this new tax now, but also for future tax changes, to stand against this approach.”