Dangerous precedent as super fund tax set to double

The Self Managed Super Fund Association is “bitterly disappointed” the planned 30 per cent tax on unrealised gains on super funds over $3m is going ahead.

The Self Managed Super Fund Association is “bitterly disappointed” that the federal government is planning to go ahead with a 30 per cent tax on unrealised gains on super funds with balances of more than $3m, according to chief executive Peter Burgess.

He said the release of draft legislation on Tuesday, which would double the tax rate on the earnings of super funds with balances of more than $3m from 15 to 30 per cent, confirmed the government’s intention that the higher tax rate will apply to unrealised gains on the value of super funds during the financial year.

He said the new regime of taxing unrealised gains, as opposed to actual earnings, was a first for the Australian tax system and a “dangerous precedent” for future tax reform.

The association has been lobbying against the federal government’s plan since the initial announcements and had been hoping for some concessions in draft legislation, but the draft legislation released on Tuesday has dashed its hopes.

The federal government has said the tax increase will only apply to 80,000 people, raising $2bn a year once implemented.

Federal Treasurer Dr Jim Chalmers. Picture: NCA NewsWire/ Linda Higginson

Federal Treasurer Jim Chalmers said the new tax regime was aimed at making the system “fairer and more sustainable”.

He said the changes would affect a “handful of people” – only 0.5 per cent of people with super funds.

He said the changes were “consistent with the government’s proposed objective of superannuation, to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

People with self-managed super funds, including small businesses and farmers which have property assets in their super fund,are expected to be hit hardest by the new tax regime, potentially forcing them to sell assets before July 1, 2025.

Treasury has said the new tax regime is needed to deal with people using super as a tax minimisation strategy and for estate planning.

“While the association doesn’t support super members with excessively large balances receiving generous super tax concessions, taxing unrealised gains is not the answer,” Mr Burgess said.

“It will give rise to many unintended consequences, defies longstanding principles of our tax system, and will result in outcomes inconsistent with the stated objective of this new tax.”

He said the stated aim of the higher taxes was to “claw back tax concessions to high-wealth superannuants”.

“It shouldn’t be to impose a new tax which, for some, will not only claw back those concessions, but result in more tax being paid than would have been the case if there were no concessions.”

People with self-managed super funds, including small businesses and farmers which have property assets in their super fund, are expected to be hit hardest by the new tax regime.

He said the federal government’s insistence on pushing ahead with tax on unrealised gains of super funds over the year on balances over $3m could see fund members paying a higher rate of tax on their super funds than the highest marginal tax rate.

He said the government could have increased the taxes on large super fund balances to achieve its goals without having to expand the higher taxes to unrealised gains.

He said there had been some “wins for the industry” in the draft legislation, but they had stopped short of what the association was hoping for.

Mr Burgess said the federal government had only allowed a two-week consultation period on the proposed legislation, which would make further discussion on the details of the legislation difficult.

He said the draft legislation had confirmed the$3m threshold would not be indexed, which would mean many more super fund members would be hit by the tax over time.

He said the tight time frame for consultation showed that the government planned to introduce the bill into the parliament before the end of the year.

The government has said the higher tax regime on super funds with more than $3m will come into effect from the tax year starting July 1, 2025 – after the next election.

In the last election, Labor promised not to increase the taxes on super during its first term.

The Greens have indicated that they may be prepared to block the legislation in the Senate unless the federal government agrees to concessions including the payment of superannuation on paid parental leave.

The Association of Superannuation Funds of Australia is supporting the proposal.

“The superannuation system needs to be sustainable and equitable so that it can deliver good retirement outcomes for all Australians,” ASFA deputy chief executive Glen McCrea said.

“We have long advocated for reforms to limit the tax concessions that flow to those on very high incomes and very high superannuation balances.

“It will be critical that additional measures are implemented to improve equity for women and for low-income earners in terms of their retirement balances.”