Mr Loftus, business advisory partner at RSM Australia, expects that regardless of the makeup of the next government, the proposed new tax on super balances above $3 million will be legislated and could lead to a “big exodus” of land from superannuation funds.
From 1 July 2025, the tax rate on earnings from total super balances (TSB) above $3 million will double to 30 per cent if the government’s proposal is adopted. Controversially, unrealised capital gains are set to be included in the calculation of “earnings” put forward by the government.
It’s this application to unrealised gains that is expected to hurt farmers, in particular, those holding property in their SMSF.
“This is just draft legislation at the moment, it hasn’t been legislated. But it’s on the cards and as a firm, our view, especially from our super team, is that this is likely to go through. The Greens are playing games at the moment, but it’s likely to go through,” Mr Loftus said.
He added that even if the Coalition were to “get in” at the next federal election, which some predict could take place as early as next year, they too “need the money”.
“This is going to be a big one,” Mr Loftus said of the proposed new tax.
“I think we’re probably going to see a big exodus of land coming out of super funds. Because if you’ve got say a $4 million farm, piece of property, and it’s had a good run recently because of lower interest rates, but if that was to go up by half a million dollars, then all of a sudden, your clients need to find that extra out of their own money because they can’t just lift the lease.
“So, they’re going to want to move those chunky assets out of self-managed super.”
Earlier this year, speaking to SMSF Adviser, Phil La Greca, executive manager, SMSF technical and strategic service for SuperConcepts urged caution for those looking to offload property until the legislation and calculations are finalised.
“Property is not like shares that you can cash in,” he said.
“With shares, you don’t need to sell the whole lot, but with a property you do. You can’t sell part of a property.
“The $3 million super tax proposal has just highlighted how people have treated property within an SMSF.”
He said rather than trying to determine if assets must be sold or liquidated, people should take a more cautious approach.
“Tread cautiously before doing anything now. A lot of people who are looking at the effect of the $3 million super tax are not young and if they pull money out, the contribution rules say they can’t put it back,” he said.
“Be alert, not alarmed yet. Of course, the SMSF sector doesn’t like the fact the proposal is there, but I take the view that we can’t just look at this as the SMSF sector but as the super sector as a whole.”
Wondering if lump sum in-specie payment of property will attract stamp duty
I think you can look at this from the SMSF sector position as the formulation of the taxable superannuation earnings impacts SMSFs disproportionately. As we all know, SMSFs use traditional accounting for trusts general ledgers whereas APRA funds work on a unit valuation that is close to net realisable value. The result for SMSFs is, unrealised capital gains are inevitably scooped up and, then there is no offset on asset realisation so there is the potential for double (Div 296) taxation. Even implementing tax effect accounting doesn’t completely solve for the potential for over taxing of capital gains so SMSFs are at a real disadvantage. The application of additional taxing isn’t the issue, it is the design methodology that is completed at odds with traditional accounting and tax principles.
You can absolutely move “some” of your land of your SMSF. You can hold it as TIC with your fund. Yes a little messy on the accounting side but if it saves you money, gets you below the threshold for your TSB, reduces stamp duty on transfer etc. You can’t say this should not be considered.
Obviously whether it’s Acc or pension will also impact the best solution. It remains grossly unfair in it’s calculation and the gov’t is tone deaf on the concerns of the professional bodies. Hopefully common sense will prevail and fairer calculation results.
The biggest problem is that the APRA funds have to spend heaps of money to comply. And to save money for the elements of society that make political donations SMSF members have to pay.