Peter Burgess, CEO of the SMSFA, said it is expected the bill will be tabled in Parliament next month and there are several technicalities that he believes should be “tidied up”.
“We’re not going to see significant changes to what we saw in the draft legislation,” he said.
“I think the debate for this will take off in earnest in February next year. What we’re going to see is the legislation introduced into the Parliament in early December, but the regulations supporting this legislation will not be finalised at that time.”
Mr Burgess said there’s a lot of detail in those regulations that hopefully will be debated, particularly concerning defined benefit interests and how this tax will apply to those members.
“It will be very difficult for the Senate to be able to vote on this legislation without those regulations being finalised,” he said in the latest SMSF Adviser podcast.
“I suspect we’re going to see this legislation introduced but stay in Parliament over Christmas, and we remain optimistic that the Senate crossbench will hold up this legislation.”
He added that he is hopeful that the crossbench members the SMSFA has been lobbying about the proposed taxation of unrealised capital gains will instigate debate and push for the bill to be referred to the Senate Economics committee for an inquiry.
Aaron Dunn, CEO of Smarter SMSF, said research commissioned by the SMSFA shows the proposal as it stands will create problems in particular around liquidity for SMSFs.
“These are all things ultimately, that without the body of evidence behind us about what the real impacts will be, we’re not really going to know,” he said.
“Some of the advantages of the industry that we have is that we can actually use real and live data now to be able to push this back now. To what extent the government takes that on board, who knows?
“But it is a real advantage for us in the industry now to have such depth in the information that we have to be able to provide research and insights back to government to ultimately try and help make better decisions.”
Mr Burgess said one of the advantages of the SMSF sector is a lot of the data lies with three software providers and the SMSFA has been able to extract data from those providers for research.
“Over 700,000 SMSF members were included in the data sample for the Adelaide University research so it’s well over 50 per cent of the entire SMSF population,” he said.
“We asked the university to model this tax, assuming it had been introduced in the 2021 and 2022 income years and what we were interested to know is how many funds would not have had the required liquidity to be able to pay the Division 296 tax.”
He said the research found that around 13 per cent of impacted funds would not have had enough cash in their fund to pay the proposed tax.
“The research couldn’t make any comment in relation to whether those SMSFs had sufficient cash outside the fund, but looking at their cash balance in the fund, they wouldn’t have enough cash to be able to pay that tax,” Mr Burgess said.
“And this is what’s concerned us from day one. If you’re using a calculation methodology of earnings that picks up unrealized capital gains, it means that you’re assuming these individuals have some cash reserves in order to be able to pay that tax, because you’re taxing them on amounts that they haven’t received and may never receive.”
He concluded there is a good reason why countries around the world, including Australia, don’t tax unrealised gains.
“It’s because it can cause liquidity, financial problems for individuals and that’s exactly how we see it playing out in the SMSF sector,” he said.
This is all ideology politics and union driven nothing to do with tax or economics. The labour government is clearly anti SMSF and pro union funds which are a key source of union income and consequently labour party union donations. To say that the Apra funds cannot do the tax calculation is ridiculous. They have far more money and resources than any SMSF. On that argument lets drop capital gains tax as it is so much more complicated than allocating income split to members above and below $3mill.
The whole proposal sounds like something politicians would come up with on the back of a napkin at a boozy lunch! It smacks of nothing more than a high school education and absolutely no knowledge or understanding of Australia’s system of taxation.
Fine if they think it’s in the public interest to use a fancy method to cap tax concessions on earnings, but apply that derived percentage to the tried and true definition of “assessable income” that has so painstakingly evolved over the last 87 years.
What a shemozzle is Div 296! I’d like to know what consultants came up with this ridiculous idea?!
Surely a simpler means of retaining taxed funds within the system would be to make franking credits non-refundable to those with ECPI …., or at the very least set a threshold where they are non-refundable?
Surely the KISS principle should be applied!!
If anyone knows the answer to this, I would love to know – I suspect that the reason that Treasury does not want the ATO to refund any tax from Unrealised Income losses in certain years is also because of potential lack of liquidity on the ATO side in those years. Would this be correct? Can anyone shed any light on this?
No it’s because the large APRA funds have to spend money redoing their systems to calculate unrealised gains. SMSF’s do this already.
Treasury claim they want common rules for APRA and SMSF’s. In house assets anyone.
So that APRA funds don’t have to spend the money SMSF’s are being pumped. Especially farmers. The problem is if they exempted it you would pay on unrealised gains in APRA funds but not SMSF’s.
The large funds would not allow that as it would mean more SMSF’s and less money to charge fees on for the APRA funds.
Thanks David. What I meant though was why can’t the ATO refund overpaid tax for following years where a “loss” is made? Is it for precisely the same reason that some SMSFs would have to liquidate to pay the tax in the first place (such as in our case). If its a bad year, so many will be caught up in this and the ATO wouldn’t have the funds to refund any of tax collected previously – possibly because its been taken up in that’s years budget spend? Imagine the ATO having to find funds to repay back in difficult years… is that why the Div 296 is written the way it is with the tax credit sitting on the ATO side, only to be credited back against the next good year? And then otherwise lost to the tax payer under several different scenarios, like death, super funds less than $3m etc?)