Following a barrage of media attention from the mainstream media in the past two weeks questioning the government’s plan to tax unrealised gains, the bill is not likely to be debated until the next parliamentary sitting days beginning on 12 August at the earliest.
Peter Burgess, SMSF Association CEO, said the association has opposed this legislation from the outset due to its poor design.
“Not indexing the $3 million threshold and taxing unrealised capital gains is a crude and grossly unfair way of addressing super wealth inequality. The consequences for the SMSF sector and the flow-on effect to the small business sector, farmers, and venture capitalists, are significant,” he told SMSF Adviser.
“The impact on future tax policy should also not be underestimated. This is why we have been fighting so hard in Canberra for sensible changes to the proposed legislation.”
He said the association’s advocacy efforts commenced more than 12 months ago and have involved regular visits to Canberra and many meetings with members of parliament, including independent members from the Lower House and the Senate.
“Throughout this time, we have been encouraged by the interest they have shown in this proposed legislation and the concerns we have raised. We have drafted amendments to index the cap and to reduce the severity of this new tax and have had success with some of these amendments being moved in the Lower House,” he said.
“The Government has the numbers in the Lower House to pass the Bill without amendment but, to secure passage through both houses of parliament, there is still the possibility of amendments being made. While this possibility exists, we intend to keep pushing for sensible amendments.”
Aaron Dunn, CEO of Smarter SMSF, said he believes there is a lot of backroom number crunching following the resignation of Senator Fatima Payman from the Labor Party, especially if she decides to join the crossbench.
“She may have a different view on this legislation than the party line, and now the government will need to make sure it has the numbers it needs to get it through,” Dunn said.
Dunn said the work of the SMSF Association in lobbying the crossbench over the past six months has impacted discussions around the legislation and the association’s influence in the debate is now being felt.
“The reality is, that even if the bill did get its third reading this week it wouldn’t have gone through to the Senate until the next sitting days,” Dunn said.
“And now that it has been pushed further down the road, it is going to create even more problems because there is going to be less time to see what ultimately transpires.”
He continued that the work of the SMSFA has been exemplary in “articulating the mechanism” of taxing unrealised gains and highlighting its flaws.
“Historically, this kind of technical messaging has not wanted to be heard, but it seems that the government, although not wanting to go back to the drawing board, may be reconsidering its position if it wants to secure the numbers for this bill to be passed,” he said.
“The most important thing the SMSFA has done is say that it is not arguing that there shouldn’t be an additional tax that goes towards sustainability and concessions that sits within the objective of super, but that it feels, as it did with the NALI/E rules, that if you can’t calculate the actual tax then apply that, as the SMSF sector can do, then an arbitrary calculation like the proposed one on unrealised gains, should not be used.”
He said the SMSFA has had to strategically work out how could get the best outcome given that the challenge until now has been how to get heard within Canberra.
“That has changed over time since this proposal was first introduced in 2023, and the association has worked hard to get to the position it is now where it is being heard,” he said.
Shelley Banton, head of education for ASF Audits, said there is no doubt that the advocacy efforts of the SMSFA are being heard clearly in Canberra.
“I think it indicates how concerned the Senate crossbench is and sends a strong signal that an early election could be called, given the bill will automatically lapse on the dissolution of parliament,” Banton said.
Meg Heffron, director of Heffron, said in terms of its design, the proposal is probably one of the most controversial taxes she has seen in years.
“If this really is a sign of the government reconsidering the current approach, I will be incredibly pleased,” she said.
“The government is perfectly within its rights to want to reduce super tax concessions for those with very high balances but it has to do it in a better way than this tax. I can’t believe they kicked such an own goal by prioritising simplicity for large funds over actual fairness to the individuals who will be paying the tax.”
In response to Aengus, that has been my experience too. It makes me think of past, so-called un-losable elections for Labor, when they assumed that aspirational Australians would stay with them. The people that we are talking to are young and not going to be affected for a long time, yet they are surprisingly savvy about this and know what is going on.
Taxing unrealised capital gains is up there with removing negative gearing, or removing franking credits – it is just such a nonsensical idea, from a very desperate government.
I will be affected by Div.296 if it passes so am one of the 80,000 that Labor could until recently casually dismiss as collateral damage when u-turning on their ‘no fiddling with Super’ promise.
But following an open family discussion, I apparently have some influence over seven other votes. (insert smiley face here…x7)
This might not be that uncommon, although numbers will obviously vary.
Even if div. 296 doesn’t pass, I am already a probable defector unless there are some marked improvements in areas which are currently multiplying.
Labor rapidly joining the opposition under the ‘not fit to be elected’ banner
I would like to thank SMSF Advisor, Peter Burgess in particular, and the many writers on this Division 296 issue.
This is a grossly unfair tax, amounting to far more than a simple doubling of tax from the current 15% tax on taxable income to an additional 15% tax on ALL income, realised or UNREALISED. There are so many inequities in this tax and it is beyond belief that it is even at this point, largely unaltered. Certainly, there is gross ignorance of politicians that have allowed this to get this far, and a greedy treasury that needs to find extra billions more dollars every year for an out-of-control NDIS to name just one major headache for the Australian people. The scheme certainly has merit but it is beyond out-of-control.
Of major concern now is the fast approaching 2026FY where this tax comes into play if it finally passes in its current form. It is foolish to have done much other than seek solutions to minimise damage to life-savings, for people who have not rorting any system. But it is not easy to move large funds, tied up largely in unrealised capital gains with unlisted property etc. The time frame is getting shorter and shorter and the least the politicians can do is to move the start date for this tax to commence. It would have possibly been foolish to start the liquidation process, but now it is getting foolish to not start some sort of process.
My SMSF has been hurt by not being proactively investing, as I have kept large cash reserves at the ready to start the moving process and I am also started well into the process of selling my business to pre-empt this tax and move into retirement to access funds to be able to move them out of SMSF where they would be caught by this egregious tax.
If nothing else, this tax has allowed me to think beyond a working life, and beyond actively growing my super and into a new mindset of investing outside of super, having far more control of my assets, and having far less red tape and complexity to contend with.
Given that the start of the 2026FY is so close and that everything is still in limbo with this, can anything be done to allow us more time once we know what is happening? Probably a silly question as obviously, the government can’t wait to get its greedy, filthy hands all over our life’s savings.
Thank you Peter and the Team. I am sure that this has been a significant drain on resources including on a personal level to health. I know that it had been to mine, but I am invigorated to ensure that nothing is available for this greedy treasurer and his treasury and the government who have shown their true colours and deceit to the people of Australia. That this proposal even saw the light of day in its initial form should be an embarrassment to the member of treasury that were party to this. My own dealings with Treasury on this highlighted their blatant ignorance.
No good business that I know would have wanted to put their name to such an outlandish proposal.
Full marks to the SMSF Association without whose tireless advocacy the original proposal, with all its manifest flaws, would have been legislated by now. There is still a way to go. The original might still get passed unaltered, but it won’t be for lack of effort by Peter Burgess and his team.
Spot on Meg! “The government is perfectly within its rights to want to reduce super tax concessions for those with very high balances but it has to do it in a better way than this tax. I can’t believe they kicked such an own goal by prioritising simplicity for large funds over actual fairness to the individuals who will be paying the tax.”
In reality, there cannot be “sector neutrality – the 3 sectors all have their particular issues. The formula works well for APRA funds and, that is important as they have big member numbers but low member numbers impacted. Defined benefit funds never work with law changes so rightfully have been dealt with via Regs. This is also needed for SMSFs as an option. If the Regs allow a SMSF to self-assess taxable income as the tax base for Div 296, the cost comes to them so the formula integrity remains, the tax is applied fairly and it comes closer to “sector neutrality” – a key priority for Treasury’s drafting criteria. In reality, it should be “member neutrality” as the key drafting priority. If member neutrality had been a feature then this bill would have been law by now. Every member in the super system should have the same application of the law, not a divergence due to the structure of their respective superfunds because that just amounts to pushing that square peg into a small round hole – it doesn’t work!
The lack of indexation of the threshold isn’t the “must change” issue it has been expressed as. The draft law clearly allows for future indexation – it is not a hard coded number (set in stone).
If one clear message can continue to be expressed – no taxing of unrealised gains – the much needed reprieve may just transpire.