Earlier this week, The Australian Financial Review noted that WiseTech director Charles Gibbon’s December 2024 sale of 1.53 million shares in the $33 billion software firm was executed through the trustee for his SMSF.
Fabemu No. 2 Pty Ltd acts as the trustee for the Gibbon Superannuation Fund, which, based on its remaining holding of WiseTech shares, could be the largest SMSF nationwide.
When Fabemu No. 2 sold the shares on 5 December, it was to the tune of around $200 million. As the assets were held within super, the capital gains on the sale were likely 10 per cent, which is considerably lower than the bill would have been had Gibbon held the shares outside of super.
But it’s the volume of shares still held in the SMSF that is most notable, with a change of director’s interest notice following the sale disclosing that Fabemu No. 2 owns 15,594,630 more shares.
As at close of trading on Thursday afternoon, with the stock sitting at $108.77, this is valued at around $1.69 billion.
While the ATO hasn’t disclosed exact values for the largest SMSFs, it has previously detailed that the average for the top 10 was $423 million.
Even among the extreme end of the spectrum, Gibbon is an outlier. And that’s before taking any non-WiseTech holdings into account.
So, what would he be on the hook for if the Division 296 tax were already in place and applied to just the value of Gibbon’s WiseTech SMSF holding?
Using the SMSF Alliance calculator for the tax as it is currently proposed, if the share price ended in the same spot at close on 30 June, the Div 296 bill would be a little over $31 million.
Ouch.
This is based on no contributions or withdrawals being made and a starting balance of $1.48 billion, which is the value of the same amount of WiseTech shares at 1 July 2024.
Now, is this what the tax hit would be? Absolutely not. It’s just a range based on publicly available information that takes no other circumstances into account.
But it is an example of the kind of superannuation holdings that the government has made abundantly clear it doesn’t support.
There’s no credible case that anyone with more than a billion dollars in their super should have access to the same level of tax concessions as someone with even an above-average balance. At that point, it quite clearly has nothing to do with saving for retirement.
Whether it leads to Gibbon ever paying the tax or it simply prompts him to move it into a different structure, this is the kind of wealth hoarding within super the Treasurer is aiming to curb.
What impact does the tax have on other large balances?
One of the major misconceptions around the proposed $3 million super tax is what portion of the balance above the threshold is impacted.
It isn’t the entire increase in total super balance (TSB) that is taxed at the additional 15 per cent rate, only the earnings – yes, including unrealised gains – that are attributable to the balance above $3 million.
Before the tax is calculated, the percentage of growth that is taxable needs to be determined, which at a high level is a fairly simple formula: (TSB at end of FY) – $3 million (large balance threshold) ÷ (TSB at end of FY).
Earnings for Div 296 purposes are calculated as TSB at end of the financial year minus the greater of TSB at start of the financial year or $3 million.
This also needs to be adjusted by removing after-tax contributions and adding back withdrawals, including pension payments.
Then, the actual tax is 15 per cent of earnings x taxable portion.
Assuming no after-tax contributions or withdrawals for the sake of simplicity in this example, a super balance that moved from $3 million (or indeed any amount below $3 million) up to $3,250,000, only 7.69 per cent of the growth is taxable.
That equates to earnings of $19,225 subject to the 15 per cent tax, ultimately putting the bill at just $2,883.75.
The taxation of unrealised gains is fundamentally bad policy, but the arguments against it should avoid overstating the actual impact on the vast majority of funds that are going to be hit with a bill.
Keith
Wait a minute here…. you are NOT telling the full story
If Gibbon TSB is $1.69B on 1st July 2025 but on 30th June 2026 the value goes down to say $1.68B after receiving dividends (due to a lower share value)
He pays no Div 296 tax and only pays tax on income – dividends which most likely will come with franking credits.
There are lot funds out of the 80,000 funds which own land and many own offices – where the mareket value is decreasing and not increasing – there is no need for them to panic. Because if they take assets out of super – the super could be up for CGT and the entity purchasing outside will be up for Stamp Duty.
Secondly there may be funds who may want to aritificially increase the price of their assets on 30th June 2025 and then decrease it from 2026 onwards for the next 5 years. Let me explain this with an example.
Assume there is an asset a stand alone office in Silverwater in Sydney which will sell (MV) for $12.5M in 30th June 2025 this is the only asset of the fund – however the trustees find a valuer who gives them a Market Value of $13.5M – this then gives them a buffer. Say the fund gets income of $200K – however the new market value drops by $200K – the closing TSB is now $13.5M. There is no Div 296 Tax as there are no earnings.
In the above example, even if Auditor uses his own valuer and if the market value of offices further reduces in future – there will be no Div 296 tax. Hence before funds start to take money out of assets by selling assets – we need to first find out the type of asset which the funds owns and its probability of increasing in value. In other words, will TSB grow over time or not.
As I have posted over and over again, all that is needed is progressive tax rates for superfunds, similar to all individuals. Example: Assessable Income (income plus 50% of realised capital gains) up to say $180k 15%, $180 to $300k 25%, over $300k 30%. It is important to note that the 50% of capital gains is misnamed as a concession. It is not and has not ever been a concession in the precise meaning of that word. It was introduced to simplify the “cost base indexation” the purpose of which was to avoid taxing inflation. The 50% assessable portion is simply a reasonable estimate of the “real” growth in the value of the relevant asset.
My partners situation based on actual example over the last 6 years of data if Div 296 was in place then – 2019FY:
Taxable Income –
Previous Balance – $3242000 June 2018
Closing Balance – $4968000 June 2019
Assume no withdrawals or contributions
Tax on Earnings – $102559
Tax on Taxable income of $240200 = $36030
Using the definition of Earnings (as opposed to Taxable Income) might make the tax take look more palatable, but the total tax paid amounts to significantly much more than the quoted doubling of tax in Super as it now includes the paper profit (so much Spin in this from Chalmers and the Labor party that my head is spinning).
Total Tax payable of $138589 for Taxable Income of $240200 is an OVERALL tax in their SMSF of almost 58% tax.
Under the Greens proposal of $2m threshold, the Div 296 tax is $154673. Add this to the $36030 = $190703 tax with actual income in cash of $240200, so over 79% of the overall taxable income will go to the government.
That leaves only $49497 cash for their pension which will not be enough for their needs (4% minimum withdrawal for now), so liquidating with time, every year is potentially the only option, following any required lump sums to fully fund their retirement needs (which is a lot of added paperwork each year also).
We see no choice but to remove most assets from super. We are getting to a stage where we do not want any more financial headaches (owning our own business, and looking after investments in super with attached red tape can now be behind us). We desire far less red tape and full control of our assets. SMSF under this new regime will no longer be fit for purposes to many including us.
Afterall, Chalmers wanted excess funds out of Super (we are guessing), so this will be us from 1st July 2025. We will now fit the model for super being for a comfortable retirement only.
Nobody is going to have much sympathy for the SMSF member with a 1 billion balance.
The bigger issue is the member with a smaller balance who leases their business property from their SMSF. They can’t sell the property because their livelihood depends on it. The talk is all about farmers, but the same concept extends to other industries as well.
It is common for properties to increase in value buy 50% or more upon re-zoning. This can lead to tax liabilities of hundreds of thousands of dollars. Should every SMSF member with a property of this nature in their SMSF sit on a few hundred thousand dollars of cash, just in case the value of their property suddenly jumps?