The government this week announced plans to increase the tax rate on earnings for amounts above $3 million to 30 per cent from the 2025–26 year onwards.
Commenting on the proposed change, Smarter SMSF chief executive Aaron Dunn said the measure will likely create “untold complexities” in the super system with the $3 million balance threshold intertwining with the pre-existing transfer balance cap.
Mr Dunn said there are more questions than answers at the moment and that people should rightly feel nervous about the announcement until further details are provided.
He noted that it’s still not entirely clear yet whether earnings and account balances quarantined under the retirement phase transfer balance cap regime will be excluded from the calculations.
Despite the fact the proposed measure will create added complexity for the SMSF sector, Mr Dunn said the additional tax rate may in fact become a greater driver for SMSFs.
“Whilst the majority of individuals impacted by these measures already sit within SMSFs, the ability to have a greater control of the tax position and account balances of members will surely see people take a closer look at this type of structure,” said Mr Dunn.
Heffron head of SMSF technical and education Lyn Formica said while accountants and administrators of SMSFs will in time break down the complexity and innovate as only they know how and develop systems to manage these changes, it may be more difficult for APRA-regulated funds.
“Surely there won’t be a carve out for them purely because the administrative burden would be too high,” said Ms Formica in a recent Heffron article.
Ms Formica said she was hopeful that the consultation period between now and the May federal budget would provide the industry with an opportunity to seek answers and propose simpler ways to improve the sustainability and equity within the tax system.
“Given the proposed start date of the announced measure is some time away, hopefully these conversations will not be limited to just superannuation tax concessions and will extend to the equity and sustainability of things like our current Age Pension regime,” she stated.
The confidence in the superannuation system was already low. This increased legislative risk just undermines it further.
What it will do is further encourage the use of offshore tax havens. Ultimately the government will lose income out of this proposal – not gain it.
I currently have clients that will be impacted. Instead of the government currently getting 15% income tax and 10% or realised capital gains, that amount will disappear. Investments will move offshore, be housed in a company domiciled offshore in a more favourable tax environment (such as Singapore) and there will not be distributions coming back to Australia. Clients like this will instead use this money when they are overseas. Australian budget will ultimately lose out.
We are lead by people with limited ability who assume behaviours wont change as a result of their policies. This is the problem when they have no real world business experience and rely on treasury employees who also have no real world business experience.
Australians voting for these inexperienced dullards are the real culprit. You can’t blame Chalmers, he’s out of his depth.
Adding more and more rules to super mean less people will be engaged with their super, and have less trust in the superannuation system. Why do the government keep adding to the complexity?
Chalmers has been silent on the treatment of public sector workers pension adjustments under the new proposals – any senior public servant, judge or politician with an annual pension over $188k would have a market value above $3m and should be paying 30% tax if these changes are enacted.