Taxing unrealised capital gains a grave concern: Burgess

The SMSFA has renewed its call for a more equitable and less costly approach to the federal government’s proposed new tax on superannuation balances exceeding $3 million.

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In his speech on the first day of the SMSFA’s annual Technical Summit on the Gold Coast, CEO Peter Burgess said the proposed approach of including unrealised capital gains in the calculation of earnings has been widely criticised.

“But it’s not only the inclusion of unrealised gains that has us concerned; there are many other items that will need to be excluded to ensure the ‘earnings’ that will be subject to this new tax are not unfairly overstated,” Mr Burgess said.

“This is what will make this whole new regime so complex and costly to implement and run.”

 

Mr Burgess acknowledged the measures outlined in the consultation paper which aim to reduce the impact of this new tax in certain scenarios but criticised the complexities of this approach and said a far simpler approach would be to exclude members who don’t start and finish the income year with a balance in excess of $3 million from this new tax.

He outlined an alternative approach that would not involve taxing unrealised capital gains or the need for the ATO to adjust reported data to avoid inappropriate outcomes.

“It is not difficult for the SMSFs and some APRA funds to identify and report actual taxable earnings at the member level. This is the most appropriate measure of earnings for the purposes of this new tax,” he said.

“While appreciating not all APRA funds can report this data, their default position should be using a deemed earning rate. It’s not a new concept and is used extensively to assess entitlements to social security pensions and is also used in the super industry – for example, to calculate earnings on excess pension balances and to determine amounts that can be withdrawn under the First Home Super Scheme.

“It’s important to remember that the majority of people impacted by these new tax thresholds are not members of APRA funds, so the model should be designed with SMSFs front and centre.”

Mr Burgess said the SMSFA is not hopeful the government will change its mind about the $3 million threshold but remains hopeful it will change the proposed calculation of earnings for the purposes of this new tax.

 

 

Keeli Cambourne
27 July 2023
www.smsfadviser.com

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Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

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