Peter Burgess, SMSFA CEO said in the opening session of the association’s national conference, that the bill, which is currently before the Senate, needs to be debated and passed by May if the government is to introduce the new law by 30 June to allow 12 months for the industry to make the necessary changes.
Despite intense advocacy work, Mr Burgess said he believes the bill will pass.
“We don’t believe we’ve got the numbers to get this Bill blocked. There are 76 votes in the Senate and the government needs a clear majority to pass a Bill which means it needs 39 votes,” he said.
“We expect that the Greens will vote with the government when this Bill goes into the Senate which means the government then only needs to have two of the seven senate crossbenchers to vote with it, so the only question that now remains in our minds is whether the Senate crossbench will support the calculation of earnings.”
Mr Burgess said the association is still speaking to as many senators as it can to convince them that the government’s proposed calculation of earnings will present many unintended consequences and that a fairer and more equitable calculation can be used.
“It remains to be seen if the current relation of earnings survives the Senate crossbench and whether there should be indexation and the taxing of unrealised capital gains,” he said.
“Our focus right now is trying to make this tax as fair and equitable as we can for impacted members and the question that’s been asked of us is how can we take out unrealised capital gains?”
He said the SMSFA has suggested that the only way to do away with this proposed tax on unrealised gains is to discard Treasury’s proposed calculation which is based on the movement of the total super balance and base it on actual taxable earnings.
“We know the large funds can’t do that and some of them can’t identify actual taxable earnings allocated to a member, so that is off the table,” he said. “The next best option we believe is a proxy right for actual taxable earnings and we think the 90-day bank is pretty close,” he said.
The SMSFA has developed calculators and spreadsheets to model this tax to demonstrate how the 90-day bank bill rate works in comparison to the government’s proposed approach to calculating earnings. The models show that the accumulated tax after 30 years would require funds to pay considerably less.
“The government’s proposal makes this a very difficult tax to manage from a liquidity point of view. How do funds maintain the right amount of liquidity to pay this tax when it jumps around so much from year to year?” he asked.
“Clients are going to have to hold a lot more in cash to manage this because they won’t know what their tax liability is from one year to the next. And because they’re holding more cash, it’s going to have a detrimental impact on the long-term performance of the fund. If they’re a small business owner, that’s less cash they’ve got to invest in their business. These things haven’t been properly modelled.”
For interest I just calculated my div 296 plus 15% accumulation phase taxes and compared it to the tax payable if the excess were transferred out of super on my smsf fund for the 12 month period to yesterday. tax due would have been >100% greater in the smsf. I will definitely be moving money if this goes through unchanged.
Yes. I am with you. We will be too. I don’t think that people understand this Bill. It is very punitive and way beyond personal tax rates in many circumstances (at least mine and yours…) and that’s in most years, just not one offs. Plus the added benefit of moving it is that we have full control and a lot less red tape, plus some other side benefits that I prefer not to mention as the government has their eye on this too. They probably are betting on this happening.
This seems like such a socialist agenda. The problem is that is kills aspiration and makes everyone dependent on the state – not a good thing at all, but that way, certain governments potentially stay in power for longer.
Government should be there to help those that truly need it, then stay out of the way. We provide plenty for infrastructure etc from all the tax we presently already pay. Even the proposed superannuation objective screams of this socialist agenda.
The government should just set the proposed super tax level at twice the TBC. Sure it would mean slightly less tax for them initially but it would eliminate the indexation problem. The super tax threshold would then increase in line with the TBC. Much simpler.
Yes, but they still have to address the formula. I went back 6 years using the formula in the Draft Bill and all but one year meant paying well above a doubling of the tax we presently pay in super on our superannuation fund’s taxable earnings. One year, it was over 52% all up on the taxable earnings! Its all because of the inclusion of the unrealised capital gains that are included in the expanded definition of “Earnings”. Our personal rates of tax are closer to 30% when flattened out over the thresholds. The Draft Bill was supposed to address the Super Concessions for those on the highest tax scales, to stop them getting more than a 15% concession on their super taxable income. We are only just into the 37% tax scale (hence just 30% overall personal tax) and all 6 years but one calculated this new tax at over this rate, thus, so not only do we completely lose the concession, but we are going to be made to pay more than our personal tax scale inside of super! And few seem to understand this! The only year under this rate (30% overall tax on SMSF Taxable Income) was just over 24% tax in the fund.
sorry in advance for punctuation i have a broken wrist. i absolutely reject that large funds cannot do an accurate allocation of earnings. the smsfa should reject that argument as ridiculous. it is simple maths, accounting allocation and coding. with ai coding the time and cost fallen through the floor. this is simply the big funds using their lobbying power. if the government passes a law that the extra tax has to be based the actual income the big funds will have to comply and will suddenly find it will not be so hard. so the big funds and the union funds do not have to update their systems the whole principles of income tax get turned on its head. it is an insane idea. it only needs one software solution provider to incorporate the new tax calculation in their package and roll out to all the large funds. sounds like the sector needs an administrative shake up if they say accurate allocation to members is too hard.
I have to say that I agree with David. I note that no one in this cohort seem to be arguing against paying more tax in super, what is absolutely disgusting is the taxing of the unrealised capital gains and the threshold, which is in my opinion too low (complaints by the Treasurer to justify this change to super were funds in excess of $100m), and not indexed.
As an exercise I went back to 2019FY for our SMSF – the tax rate on taxable income would have been 15% payable by the SMSF, 19.8% payable by Member 1 and 17.7% payable by Member 2 for a total tax on taxable earnings of 52.5% for that FY, most due to huge capital gains (pie in the sky 30th June) valuation. There is absolutely no way that this is a “doubling” of tax on the superannuation funds. It is an outright lie and it is disingenuous of Treasury to sell it to the general public in this way.
Even Angus Taylor doesn’t call it out as being far more egregious than a doubling of tax in super.
I am beginning to seriously doubt that even Treasury understand the implications and if they do, then they are being extremely deceitful.
I am not sure that providing modelling to the government that funds will pay considerably less over the next 30 years using their calculation will be helping the SMSFA cause.
The 90 day bank bill rate (currently 4.35%) may be a good proxy for the cash investment earnings that a fund makes, however it then ignores the tax benefit obtained on capital gains when the assets are sold.
You could use a higher base earnings rate, but then you will be back in the situation where unrealised gains are effectively being taxed, and some members will then be paying tax on earnings that they will never receive, given their investment mix.
Lots of problems, not many solutions.