Backlash building against plans to tax unrealised capital gains
The government’s proposed tax calculation for the $3 million threshold will see additional burdens placed on SMSF professionals.
Earlier this month, Treasurer Jim Chalmers released the details for his new tax regime that would apply a 15 per cent tax rate to the increase in the value of the relevant part of each fund, rather than taxing capital gains only when assets are sold.
According to Tony Negline, superannuation and financial services leader for CAANZ, it has never been seen in Australia.
Denmark is planning to introduce a similar scheme this year called the ‘mark to market’ taxation of real estate capital gains.
“Effectively, the way the policy will work as the Government has announced it, it that they will be taxing unrealised gains,” Mr Negline said.
“The other addition to that is, say, if your account balance at the end of the financial year 2022 is $100,000 and this year is $90,000, you won’t get a tax credit, it will just carry forward so you will not get a credit for the loss.
“Super fund members who have this problem can either pay the tax themselves or get their super fund to pay it, but if the funds pay it, it has to have the cashflow available to do that.”
Mr Negline said presently super funds send member account balance data to the ATO at the end of each year and the idea behind this new way of doing things is to reduce the amount of administration work.
“Effectively, the ATO is saying ‘we have the data so we can do it’”.
The current estimate is that this will raise around $2 billion over forward estimates – around $500 million each year.
“Every super fund will have to report data so they will have to change disclosure documents, answer questions from members, check everything is correct, change their software, so it is going to be a lot more expensive for the funds,” he said.
“At moment, the associations of large funds have come out in favour of the policy, and I don’t recall any coming out against it.
“But like all of us, they want to see the detail.
“On the whole, small funds, especially in the SMSF, would be against it, and a lot of the work that has to be done will fall back on administrators and accountants.”
However, David Busoli, principal and SMSF specialist mentor, said opposition to the government’s proposed super tax is growing rapidly, not so much for its imposition but for its methodology.
“This ‘equity’ measure seeks to impose a non-indexed cap. It is disingenuous of the Government to state that the measure will ‘only’ effect 80,000 members when they well know that bracket creep will cause that number to grow by a multiple in under 10 years,” he said.
“Indexation is not negotiable. It is mandatory. Anything less makes a mockery of the concept of equity.”
Mr Busoli said the second major problem is the proposed formula.
“It does not impose an additional 15 per cent tax on the income of high-balance members. It is not based on taxable income at all,” he said.
“It is a new type of wealth tax that includes unrealised gains. This method has been proposed because it is easy to calculate and does not require any changes to existing systems.
“Convenience does not equal fairness. It would not be particularly onerous for an additional field to be incorporated into fund financials which species the pre-tax income attributable to each superannuation interest.
“It’s a software issue – and a rather easy one at that. The ATO could then impose an additional 15 per cent tax on this amount. The result would be what the government announced – not what their proposed methodology would achieve.”
He added that with a focus on the handful of members with balances in excess of $100 million the government initially had the opposition on the back foot but the pendulum is swinging back.
“The government needs to remember how John Hewson lost the unlosable [sic] election in 1993 when he could not explain how his proposed GST on food would affect the price of a birthday cake,” he said.