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The concept proposed under Labor’s $3 million threshold has sparked fears the same approach could be adopted for other types of entities.
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Tax on unrealised gains in super ‘a dangerous precedent’
22 March 2023
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The idea of taxing unrealised gains under an earnings tax calculation is a unique concept for Australia and there’s concern the government may adopt this approach in other areas beyond super, Smarter SMSF chief executive Aaron Dunn has warned.
In a recently released fact sheet on the $3 million threshold for super, the government revealed capital gains would be included for the purposes of its earnings tax calculation for the measure.
Speaking in a recent podcast, Mr Dunn said this is a concept that’s been explored overseas for certain assets and could open up other opportunities for the government to tax assets in this way.
“If it’s good enough for superannuation, then perhaps they may decide to do the same thing with trusts, for example,” he warned.
CA ANZ superannuation and financial services leader Tony Negline said there is a risk that this kind of concept could be applied to companies or individuals or other areas.
One of the concerns about this proposed calculation methodology, he explained, is it’s essentially double taxation.
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“You pay tax on the unrealised capital gain and then if you dispose of it next year, you don’t get the credit for the tax that you’ve already technically paid,” noted Mr Negline.
“Another aspect is that you can only carry forward losses and you don’t get a credit for them. I think if you’re going to be paying tax on unrealised gains, you should be getting a credit for unrealised losses for it to be technically similar.”
Mr Negline said the approach calculation approach put forward by Treasury goes against the fundamental way that income is viewed, which is something that’s been realised.
“This goes against how our income tax laws are written. Capital gains is included in the calculation of assessable income where it’s been earned by a transaction, i.e. it’s been realised,” he noted.
“So it’s going to be interesting to see how they square that up in terms of the normal income tax provisions. If they solve that puzzle though, and its successfully applied [with this policy] then we may have the issue of it being successfully applied to other entities whether that’s individuals, companies, trusts or even managed funds.
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