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The government looks set to press ahead with the $3 million super tax design as planned despite the profession raising major concerns.
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$3m super tax likely to progress ‘warts and all’, IPA warns
07 May 2024
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The referral of the bill to implement the $3 million super balance tax to the Senate Legislative Economics Committee is unlikely to result in any improvements that would result in a more workable framework for the tax, according to the Institute of Public Accountants.
The proposed legislation to introduce an additional 15 per cent tax on the growth of super balances exceeding $3 million was referred to the Senate Legislative Economic Committee in December last year, with the Committee due to report back at the end of this week.
Despite the extensive advocacy work undertaken by the accounting bodies, SMSF Association and other associations through submissions and appearances before the Committee, IPA general manager of technical policy Tony Greco said the government is unlikely to address the major concerns raised during that process.
“We feel that the government will push ahead with required changes warts and all,” said Greco.
“Instead of working with key stakeholders to devise a workable framework to tax individuals with high super balances more, the government has instead focussed its intent on pushing through a framework that adds complexity, is inequitable and will result in unintended outcomes.”
Greco said the two-week consultation period after the initial announcement was a clear sign that the government was not interested in seriously considering other alternatives.
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“Appearing before the Senate of Economics Legislation Committee I and many other representatives outlined the serious concerns in the proposed framework which fell on deaf ears,” said Greco.
“The feeling I got from the Committee was that those taxed to the extra impost only represent a small percentage of the population, so if the proposed law is inequitable or complex so be it.”
Whilst individuals who have amassed a super balance over $3 million should consider themselves fortunate, Greco said it should not be acceptable that proper tax law design around efficiency, fairness and equity should be ignored because this cohort only represents .05 per cent of the population.
“All new tax measures need to be appropriately designed and implemented to achieve the intended policy objective within the principles of good law design,” he said.
Greco said the complex design features of the proposed policy will also add considerable cost to administer the whole superannuation system and create uncertainty which will discourage many from making additional contributions towards their retirement.
CPA Australia, CA ANZ, the IPA and the Financial Advice Association Australia (FAAA) all restated their overriding concerns about the Better Targeted Superannuation Concessions bill in a recent submission.
The submission warned that the draft regulations for the policy have been poorly designed and must be redesigned.
“The measures are very complex and will be costly to administer for government, superannuation funds and individuals,” it said.
“We consider that the cost estimates contained in the bill’s explanatory memorandum are low: all fund members will be impacted by these policies as all administration IT systems, disclosure documents, annual statements and call centre scripts etc must be adjusted.”
The submission also reiterated many of the concerns previously raised by the associations that the policy will tax unrealised capital gains which is inconsistent with Australia’s tax regime.
“Our modelling indicates that it would be difficult to predict when tax will be payable from one year to the next,” the submission said.
“Cash flow management will be practically impossible and it will force some funds to sell assets, where they are unable to defer payment of tax. In the case of large illiquid assets, taxpayers will also be further penalised for long sale periods.”
Greco said this is a “dangerous precedent” for Australia’s taxation and superannuation system and will likely cause cash flow concerns.
“Volatility around asset values can fluctuate wildly from year to year which can result in little similarity between the actual gain made when realised, versus any tax paid whilst the asset was held based on the movements in its unrealised value over time,” he said.
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