SMSFA lobbying for deeming rate calculation
The SMSFA is lobbying the parliamentary crossbench to push for an alternative to the proposed calculated earnings method in the $3 million super tax legislation.
Peter Burgess, SMSFA CEO, said in the latest SMSF Adviser podcast it is likely the government will push ahead with the proposed approach to calculating earnings using unrealised gains.
“Our focus right now is on making sure this tax works as fairly and equitably for all superannuation members,” he said.
“The only way you can introduce a tax on earnings – superannuation fund earnings which is payable by the individual – is to ensure the tax is levied on taxable income but what's being proposed is that the tax will also be unrealised capital gains as well.”
Mr Burgess said over the past few weeks that the SMSFA has been having discussions with Teal MPs in the lower house and the Senate crossbench.
He said there is concern from both that the new tax will target unrealised gains.
“There is an acceptance from the crossbench that it’s not good policy and we're working with them to try and find an alternative calculation of earnings, one that doesn't involve funds reporting actual taxable earnings, because we know that's not going to be accepted by the large funds and others outside the SMSF sector,” he said.
Instead, Mr Burgess said the SMSFA is now focusing on pushing for calculations to be based on the deeming rate.
“There will be winners and losers with deeming but by a process of elimination we can't see any other way of dealing with this issue,” he said.
“Our support for a deeming rate approach would only be on the basis that it's pitched at the official cash rate. We don't think a rate any more than that would work.”
He added from the association’s initial calculations that if the deeming rate is at the 90-day bank bill rate, most clients will pay less tax under this approach compared to the Treasury's proposed approach.
“And deeming would have the other added benefit of being much simpler to apply so we wouldn't have to worry about carrying forward negative losses,” he said.
“It would be more predictable in terms of the outcomes which we think is a big problem with the government's proposed approach because they are linking the tax to performance in investment markets and the liability could be very different from one year to the next.”
He continued that with Treasury’s approach it is hard to manage liquidity because of the uncertainty of the market and the end result will be clients holding more cash than they have to.
“This will have a long-term impact on their performance which is why we think deeming has a few advantages over that,” he said.
