In its submission to Treasury on the exposure draft of the $3 million super tax legislation, the IFPA said the plan to tax unrealised gains is a “dramatic departure from current established tax law principles”.
IFPA head of superannuation and financial services, Natasha Panagis, said most people do not object to a progressive rate of tax based on large member balances but do object to the current methodology.
“This change to tax law is unacceptable to any rational person who knows that tax should only be paid on income that has actually been derived or on actual realised gains,” she said.
The association also recommended that losses should not be carried forward.
It stated that members should receive a refund of the tax they have already paid to offset any current tax liability, otherwise any taxes paid on unrealised gains may be lost if an individual’s account balance does not exceed $3 million again.
“This is preferred rather than carrying forward the loss that may or may not be used at a future date, depending on market volatility which will be common as markets go through different cycles,” Ms Panagis said.
“As such, losses should only be carried forward if there was no tax paid in the past.”
She added the lack of indexation must also be addressed.
“An unindexed threshold will capture more people over time through bracket creep and will therefore be worth far less in future dollars,” she claimed.
The IFPA also recommended certain amounts be permanently excluded from a member’s adjusted total superannuation balance (TSB) to ensure a fairer proportion of earnings is achieved.
It stated that statutory amounts such as minimum pension payments that must be drawn should not be added back to a member’s TSB.
Other amounts that should not be added back include those withdrawn for the payment of superannuation-related taxes such as excess non-concessional contributions and associated earnings to prevent double taxation.
Ms Panagis said death and disability pensions should also be permanently excluded from a member’s TSB as should other remediation payments such as compensation amounts received by a member’s superannuation fund from a financial service or insurance provider for inappropriate financial advice.
Among the other recommendations the IFPA has submitted is that there should be introduced a concrete deferral regime to pause ATO enforcement of an individual’s Division 296 tax liability.
It stated the deferral of Division 296 tax debt should apply to all funds, not just defined benefit funds.
If legislation to tax unrealised capital gains passes how would a High Court challenge go? Would High Court judges have to rule themselves ineligible to hear the case if they have more than $3m in super due to conflict of interest? This could be one entertaining shitshow.