Tim Miller, technical and education manager for Smarter SMSF, told SMSF Adviser that the concept of an adjusted total superannuation balance introduced in the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 suggests that earnings on excess non-concessional contributions (NCCs) are likely to be taxed twice under a release authority as part of the new Division 296 tax.
“This is a new detail that has emerged,” he said.
“We knew when Treasury introduced the Division 296 tax that we would have to work out earnings that were to be taxed, and one of the calculations is that you add back withdrawals that have been used in the current financial year.
“This includes amounts that are being released under release authorities of which one is non-concessional contributions.”
Mr Miller said the ATO calculates the amount from 1 July each year a member exceeds their NCCs and applies a marginal tax rate on them.
He said the draft exposure alludes to the fact that including these associated earnings as a withdrawal to be added back to the adjusted total super balance is similar to applying a double tax.
However, he said, Treasury has stipulated that it is excluding a similar calculation for people who have accessed the First Home Super Scheme.
He said the new Division 296 defines “your withdrawal totals” at Section 296-50 to include, “the amount of a payment made during the year by a superannuation provide from a superannuation interest of yours in relation to a release authority issued under Division 131 or 135 in Schedule 1 to the Taxation Administration Act 1953, other than a release authority that relates to a first home super saver (FHSS) determination”.
“For those with an FHSS release authority, there is a formula that has been put in place to preserve the tax concessions for the associated earnings calculated under the scheme, meaning that the amount added back in as a withdrawal excludes the earnings,” he added.
“So, the question is, why has there not been a similar measure introduced for the associated earnings attributable to excess NCCs?”
He continued that it can be assumed that people with a super balance in excess of $3 million would most likely already have a first home, and not access the FHSS.
He added that the concept of releasing 85 per cent of the associated earnings for excess NCCs was based on the premise that those earnings should have been made outside of superannuation and therefore they are going to be treated as such and taxed accordingly.
“Given that this new measure has been introduced to reduce tax concessions for certain individuals, it’s unnecessary to include it in existing measures that already reduce tax concessions,” he said.
“It’s just another element that highlights the inequity of basing earnings on an unrealised member balance.”
Thank you for getting word out there as to how egregious this tax is.
The double taxation of this proposal, in terms of the tax payments being made out of super being counted also as a withdrawal, has not changed since the initial proposal came out in February and I have raised this with my local member who passed it on to Treasury, who from their responses obviously don’t care. If the fund itself was taxed, instead of the individual, this would not be the case, as the tax liability would be accounted for on the balance sheet against any assets.
There is another double taxation as well – unrealised capital gains will be taxed under division 296 as well as on sale of the actual asset as far as I can tell, because there has been no discussion on changing CGT rulings.
I am a little amazed that it has taken the naming of the proposal introduced in February (to be called Division 296) to bring many more people out of the woodwork to oppose this. I feel that because the proposal was so preposterous, that many felt it was a nonsense that would not take off. My common sense side of the brain told me not to panic and that this was so flawed and so egregious that it would do nothing but to encourage the conversation that Jim Chalmers wanted, but my fearful side, that knows that we are so heavily in debt in this country, kept saying “what about this low hanging fruit”. The government can make up any laws that it wants, with a majority, and they are very left-leaning. The stick is coming out for all of those that were stupid enough to believe in delayed gratification.
No wonder so many live for the day – carpe diem or perhaps, vivere in diem.
The current government does not care that most of the revenue they receive comes from the very people that are most likely going to be soccer punched with this legislation. We did nothing wrong but save, sacrifice and work hard, with a fierce determination not to burden future tax payers with our old age, once we retired from the workforce.
Letters received from Treasury show a complete disregard to my concerns and a determination to proceed regardless, with very few changes.