On Tuesday, Chalmers said that although Labor tried to change the limited recourse borrowing arrangements for SMSFs in 2019, it is not on its agenda now.
“That’s not something that we’ve been considering. The point that we’ve made on a number of occasions since the election, the parliament will return at some point. It won’t be in the next few weeks. No doubt there’ll be discussions in the Senate about the superannuation changes but those discussions haven’t begun,” he said.
“It’s not our intention to resurrect all of the policies from three elections ago. We took our agenda through the election, including the changes to superannuation tax concessions to make very generous concessions slightly less generous, but still generous. We would like to see that legislated in the Senate. We’ve not had any discussions about any of the changes that the other parties would like to see in the Senate.”
The Greens previously said that if the government wanted to pass the Better Targeted Superannuation bill through parliament, it would have to consider banning the use of LRBAs for SMSFs, arguing that they have a negative impact on the residential property market.
In a submission to the Senate Standing Committee on Economics last year, the SMSF Association said this was “misinformation”.
“These [myths] persist despite empirical data clearly illustrating that the concentration of SMSF investment in residential property, in relative terms, is very low,” it said.
“Further, the level of gearing in SMSFs under the limited recourse borrowing arrangements (LRBA) is another area surrounded by misinformation. The use of LRBAs is subject to stringent rules and regulatory oversight. Greater understanding of these two elements demonstrates why these are not factors of significant influence on the accessibility, and affordability of residential housing.”
The SMSFA said direct property investment allows for investment diversification and choice for SMSF trustees and reiterated that this is also an investment choice available to the larger APRA-regulated superannuation funds, although usually in large-scale projects rather than an individual house, unit or apartment.
Peter Burgess, chief executive of the association, said when the Greens raised the issue last year that he believes LRBAs are being used as a “stalking horse” by people who think SMSFs are “an anathema”.
“Once again, critics have hung their hat on the Financial System Inquiry (FSI) report that was handed down in December 2014 recommending that LRBAs be abolished – a recommendation the government chose to ignore,” he said.
“Since then, we have had significant changes to the advice sector, a royal commission and a number of reforms that have substantially reshaped financial advice as a profession.”
Furthermore, he said, two reports from the Council of Financial Regulators in 2019 and 2022 examined the evidence and concluded that LRBAs were not a threat to the system.
He said the 2022 report “established a clear baseline for monitoring risks relating to LRBAs in the superannuation system” and demonstrated “that borrowing by SMSFs through LRBAs has not posed a material risk to the superannuation system or broader financial system since it was first permitted in 2007”.
“Although over the past 10 years, there has been an upward trend of SMSFs adopting LRBAs, the proportion of SMSFs using LRBAs is showing signs of stabilising or slightly decreasing in recent years. Only 11 per cent of SMSFs have an LRBA, and LRBA borrowings represent just 2.7 per cent of total assets for the sector,” Burgess said.
The ATO’s annual statistics for 2021–22 show that SMSF investment in residential property, both directly and through LRBAs, stood at $76.9 billion. With CoreLogic valuing Australia’s residential market at $10.8 trillion, it means SMSFs hold about 0.7 per cent of the market.
“Since LRBAs became an investment tool in 2007, they have been mired in controversy, a convenient whipping boy for those with an axe to grind against SMSFs,” Burgess said.
Alternative methods of taxation rejected
Meanwhile, Assistant Minister for Treasury Andrew Leigh said the government had looked at alternative approaches to making the superannuation system fairer, but said they were “too expensive”.
Speaking on 2CC radio in Canberra, Leigh said the alternative approaches “are incredibly expensive” and “would come at the expense of all members, not just those with high balances”.
Leigh said the proposed $3 million super tax was “the simplest approach” and said alternative approaches would require “a rejigging of the super system, which would be expensive for all members”.
“Our aim is to ensure that those top 0.5 per cent of people pay a slightly higher rate of tax. They’re currently paying a 15 per cent tax rate, which will go to a 30 per cent tax rate. Still below what they would earn elsewhere.”
When asked whether the government’s plan to tax unrealised gains was an equitable approach, Leigh said this government is “proceeding consistent with the way in which the former Coalition government made changes to superannuation”.
“They made some changes to curtail the top-end superannuation tax concessions.”
“But our changes are very modest. They’re simply going to apply a concessional tax rate. You will still be paying a lower tax rate on super than you would if this was money just invested in the share market.”
Leigh reiterated that the proposed legislation has been through “three rounds of consultation” and said “this is the approach that has been recommended to us, and I think it’s really important to recognise that this is a change which applies to just 0.5 per cent of people”.
“So, 99.5 per cent of Australians are going to be unaffected by this change. Their lives will continue as usual and it responds to a concern that I think people have had for many years that superannuation tax breaks weren’t fair and too much benefit was going to those with multi‑million-dollar superannuation accounts,” he said.
He added that the proposals have been in the parliament for the better part of two years.
“We’ve taken them to an election. I’ve got to say I don’t get stopped in the street by people saying, ‘Well, the real problem is that Labor’s trying to increase the tax rate on people with more than $3 million’.”
“I don’t think people need to be concerned that they will be paying a higher rate of tax than they would outside the super system. Super will still be concessionally taxed and we’re doing it the way in which Treasury has recommended because that’s the simplest path forward and the lowest cost path forward.”
Quote from the above article: “Our aim is to ensure that those top 0.5 per cent of people pay a slightly higher rate of tax. They’re currently paying a 15 per cent tax rate, which will go to a 30 per cent tax rate. Still below what they would earn elsewhere,” Leigh said.
Fact – this tax is not a simple doubling of the tax already paid in super. The Labor party still refuses to acknowledge this.
I can show based on past recent years, using the proposed formula, that sometimes the total tax payable is more that 3.5 times the actual 15% rate paid for one year. If the Greens had their way, in the same year, the tax payable is more than 5 times what I paid in that year. FACT – THIS IS NOT A SIMPLE DOUBLING OF THE TAX already payable. It is just another SPIN! They will not acknowledge this.
Add to this ridicule rate over and above any personal or company tax rates, and there is still the taxing of the capital gain – a second taxation on the same amount.
They just keep to their same script, repeating the same lies over and over again.
Where are the fact checkers on this to clear this up once and for all. And use real life examples, not made up ones, provided for by both sides of the argument.
Why is it, that other for themselves, they don’t want to see anyone be able to do well for themselves. The tall poppy syndrome is too alive and too well in Australian politics!
Though taking LRBAs off the agenda is excellent news, I take issue at Andrew Leigh’s statement that Div 296 has been through three rounds of consultation. Given that the terms of that consultation specifically excluded comments on the level of the cap, its lack of indexation, and the method of its calculation, it was nothing more than a box ticking exercise. Tellingly, an issue that we could comment on – the drafting error that excludes the tax from applying should a member die during the year (unless they die on 30th June) – was ignored indicating the lack of good faith inherent in this consultation process.