Federal budget 2023: More talks needed as tax hit to super funds ‘to drive costs’

The Self Managed Superannuation Fund Association has called on the federal government to reopen discussions on the proposed doubling of the tax rate on the earnings of super funds over $3m.

The federal budget announced a move to have superannuation paid with wages and not quarterly as can now be the case.

The Self Managed Superannuation Fund Association has called on the federal government to reopen discussions on the proposed doubling of the tax rate on the earnings of super funds over $3m.

It follows confirmation in this week’s budget that the government is planning to go ahead with the proposal as announced earlier this year by Jim Chalmers, despite concerns expressed by the self-managed super sector it could hit small business, farmers and others who have property assets in their funds.

The proposed measure has also been criticised for its failure to index the $3m threshold and its unprecedented proposal to tax fund members on the basis of unrealised capital gains, not just the income of the funds.

SMSF Association chief executive Peter Burgess warned that the proposal could “drive up costs substantially” for people who had small business premises, property, or farms in their super funds.

“Further consultation about this new tax is imperative so that the full impact on the small business and farming communities and others can be properly considered,” he said.

The government has estimated the measures, which will impose a 30 per cent tax rate on earnings of funds with assets of more than $3m from July 1, 2025, will raise more than $2bn a year.

Mr Burgess said there had only been an 18-day consultation ­period, which included Easter, after the draft paper on the proposal was released by the government in March.

“We understood the need to finalise things for the budget, but that should not come at the ­expense of rushing important legislation,” he said.

Mr Burgess said the proposal to impose the 30 per cent tax rate on the total member balance in a fund over $3m, and not the actual income on the fund from assets over $3m, was “neither simple, nor fair”.

“By definition, a member’s total super balances include unrealised gains and a growing list of items that will need to be excluded to ­ensure that ‘earnings’ for the purposes of this new tax are not overstated,” he said.

The chairman of stock broking and wealth management company Ord Minnett, Warwick Smith, told a post-budget seminar hosted by consulting firm KPMG that the sector was relieved to see no new negative changes to superannuation in the budget.

But the businessman and former Liberal minister said there were still concerns by some people about continued moves to increase the tax on super.

“The older I get, the more worried I get about governments trying to take off my self-provision and my sacrifice to save to fund my own retirement,” he said.

“There are many, many people in Australia who may not be impacted by the changes but know the government is creeping up on them all the time. We need governments to step back from getting into super the way they are.”

KPMG Australia’s national sector leader, asset and wealth management, Linda Elkins, told the seminar that the number of people who would be impacted by the proposal would continue to rise above an estimate initial 80,000. “Without the $3m being indexed, the amount of people who will be impacted will increase over time and capture many more people,” she said.

She said she hoped that the legislation on the purpose of superannuation could “provide a balance” against any inequities in future proposed changes to the system.

She welcomed the budget’s announcement of the move to have superannuation paid with wages, and not quarterly as can be the case now, as well as other moves to crack down on the underpayment of superannuation by employers.

“The winners out of this are young people who may not be paying attention to their superannuation,” she said. She said paying superannuation on a more regular basis would also allow people to benefit from the compounding of investment returns on savings.

She said she was disappointed the government did not announce that superannuation would be paid on the federal government’s paid parental leave scheme.

But she welcomed the fact that the budget did not contain any major changes to superannuation.

“The main thing we have been calling for is stability in the settings for superannuation so people can confidently plan for their retirement,” she said.