Greens Senator Nick McKim raised concerns about the “loophole” that will exist with the new CGT and negative gearing proposals and their supposed benefit for SMSFs.
“Self-managed super funds pay an effective tax rate of 10 per cent on capital gains. They’re protected from the negative gearing changes in this legislation, and they can still, or they will still be able to borrow to buy existing residential properties, because of the fact that the limited recourse borrowing arrangements will remain in place,” McKim said.
“There’s been a flood of spruikers online advertising SMSFs, SMSF the budget loophole, why SMSF is now king, invest in property through your SMSF.”
McKim questioned Dr Peter Varela from the Australian National University’s Tax and Transfer Policy Institute as to whether he was aware of this trend and whether it caused any concern.
Dr Varela replied that, looking at the savings tax system as a whole, owner-occupied housing and superannuation are the tax-preferred assets in Australia and that will be the same after this bill.
“If you have a system where everything is taxed at different rates and you start to bring some of them together, essentially you’re going to bring together these things over here that will improve the system over here. But you might end up with larger gaps between the capital gains system over here, held outside of super,” he said.
“That’s kind of a necessary thing, unless you want to have a holistic inclusion of housing, and of superannuation. You are going to make some of these trade-offs better and some of these trade-offs worse. This isn’t to say this is a bad thing. This is good to harmonise some of the system, but it’s just a trade off when you do this type of policy borrowing arrangement for residential property.”
Dr Mark Zirnsak from the Tax Justice Network said that when this legislation passes, there will need to be monitoring of “wealthy” people who pursue ways of reducing their tax and tax plan.
“They’ll be looking for every opportunity to do that, and I think the parliament needs to monitor that and decide which of those need to be addressed,” he said.
“I haven’t looked particularly at the self-managed super funds as a particular issue in relation to this bill, but you know it may constitute one of the areas that tries to benefit from these changes.”
Zirnsak continued: “The legislation contains provisions for the Treasurer, which are, in my view, very broad powers, where this treasurer or any future treasurer could reapply the 50 per cent capital gains tax discount and unrestricted negative gearing on any asset class that he or she might want to apply it to, including existing properties.”
McKim later raised the changes to the treatment of trusts, asking Associate Professor Kathryn James from Melbourne University’s law school if there is a risk that people will be drawn to shelter their money elsewhere with these changes.
James said that the changes affect tax planning more than underlying economic behaviour and that reforms to discretionary trusts will be needed.
“There will need to be a discussion had around the use of superannuation as a tax minimisation vehicle, so cutting off other loopholes is important in that respect, and that’s important future work to do. But from my point of view, beginning this program of reform is an important first step,” she said.
McKim once again raised the issue of spruiking advertising SMSFs as the Budget loophole and asked whether Associate Professor James had any concerns.
James said she did, adding, “This is the kind of future reform program, to cut off these loopholes.”
“Superannuation has gone beyond being an important vehicle to fund retirement savings to be a kind of tax-preferred investment vehicle, which again occurred at the turn of the century, too, so there is a need to close off those loopholes, and that’s a job for further down the track,” she said.
Peter Burgess, CEO of the SMSF Association, said when it comes to property spruikers and SMSFs, the tax settings or the SMSF structure is not the issue – it’s the conflicted, inappropriate, and often unlicensed advice that’s provided to the SMSF trustees that is the ultimate cause of consumer harm.
“Treating SMSFs as the problem mischaracterises the issue and risks directing reform away from the conduct that causes the harm,” he said.
“If the heighten risk of high-pressure sales tactics and harmful lead generation activity is the concern because of the proposed budget changes, the conversation should be about measures which address the potential for misconduct to occur, rather than measures which limit choice by targeting the structure through which investments are held. The focus should be on ensuring appropriate licensing, supervision, and accountability.”
We all know that banning LRBAs is the trade-off the Greens have demanded in the backrooms in order to pass the rest of the appalling Budget announcements.
There is already a plan to monitor wealthy people with superannuation assets. It is called Div 296.
Clearly Greens want more
Actually self-managed super funds pay an effective tax rate of ZERO per cent on capital gains, if the assets are held until the fund converts to ABP. This is particularly the case for large assets like properties which can’t be sold down progressively, and are nearly always sold in ABP phase.
What would the Greens say if they realised the situation is actually worse than they thought!!
I hope Peter is being heard at the Committee. Seems the speakers overly favour one side. Academics can add value to policy debate if they are across the subject. However, academics that have a ideological view and use some training to build out their thesis are just empty vessels.
If a professor in law is a recommended speaker then it would be very useful to have a person that has some practical experience along with an understanding of the interaction with economics and consumer behaviour.
It is shameful the weasels words around “taxing inequality of investment versus wages”. Wages are a reward for labour. Investment capital is generally garnered as a result of surplus wages. So already taxed and then becomes a different wealth generator – the capital produces the taxable income.
Do we want a society where we spend what we earn with little incentive to build for a better lifestyle? Sounds like government transfers will be even more important in the future than they already are.