In its submission to the Board of Taxation Red Tape Reduction Review, the SMSFA stated there are a number of technical amendments that could be implemented in the short-term to address unintended consequences or reduce regulatory complexity and in-turn cost.
“We welcome the opportunity to contribute to the review to reduce red tape in the tax system and strongly support the government pursuing ways to achieve this to ease the compliance burden on businesses and in turn, improve economic activity,” it stated.
“Regulatory costs to comply with Commonwealth regulation have soared in recent years and is estimated to now equate to 5.8 per cent of GDP or $160 billion a year. Inefficiencies, complexity and uncertainty in the taxation system contribute to this alarming figure.”
In regard to Div 293 tax, the association said a technical amendment is needed to address the unintended legislative gap that penalises taxpayers who receive lump sum superannuation payments due to employer non-compliance with salary and superannuation obligations.
It continued that currently, Div 293 imposes an additional 15 per cent tax on super contributions when combined income and concessional contributions exceed $250,000, without discretion to reallocate or disregard lump sum payments caused by employer errors.
To address this issue, it said, there are two probable solutions. The first is to amend Div 293 to provide the Commissioner of Taxation with discretion similar to section 291-465, allowing reallocation of contributions to the relevant financial years.
“We note the recent publication from the ATO that states it currently would be unsuitable to use these relief powers in such circumstances, as it is inconsistent with the purpose of the provision,” the submission stated.
The association also recommended the introduction of a concession akin to the lump sum payments in arrears tax offset under Subdivision AB of Division 17 of the Income Tax Assessment Act 1936.
“Either of these amendments would align Div 293 with existing fairness mechanisms, prevent taxpayers from being unfairly penalised, and address the inconsistency between Divisions 291 and 293,” it stated.
“Further, the proposed changes would have minimal revenue impact and, but benefit impacted taxpayers. Further consultation with industry is recommended to be held to determine the most appropriate technical amendment to address the current unintended legislative gap that penalises taxpayers who receive lump sum superannuation payments due to employer non-compliance with salary and superannuation obligations.”
The submission said another amendment to be considered is in relation to non-arm’s length expenditure capital gains tax, stating that the views expressed by the Commissioner of Taxation in Taxation Determination TD 2024/54 on the alignment of the NALI/NALE provisions with the calculation, treatment, and classification of capital gains as statutory income require further clarification.
“The industry’s interpretation of TD 2024/5 (that the current law risks tainting arm’s length capital gains that occur in the same year as one that is not at arm’s length) appears to be at odds with the ATO’s ‘informally advised’ position,” it stated.
“Should the industry’s position prevail, an urgent legislative solution is required to remediate this outcome, and to allow for the apportionment of capital gains, separately recognising the proportion of the net assessable capital gains that are not arm’s length income.”
The SMSFA recommended that the ATO should provide further clarification on how the NALI and CGT provisions interact when an arm’s length capital gain occurs in the same income year as a non-arm’s length capital gain.
“If necessary, a legislative solution should be sought to ensure an appropriate appointment of capital gains that is not NALI,” it added.
