The Aged Care Act, achieved with rare political cooperation, will put residential and home care on a more sustainable basis with individuals’ contributions more closely attuned to their financial position.
Institutional investors get it. So do some financial advisers. But for most SMSFs, sovereign and corporate debt is the forgotten asset class – despite the defensive benefits it can deliver.
Taxing earnings on super balances above $3m bad policy: NEO Super
Nicholas Ali (pictured), director of SMSF technical services at the independently owned specialist SMSF Administrator NEO Super, doesn’t mince his words – the Federal Government’s proposal to double the tax on superannuation earnings on balances exceeding $3 million (Division 296) to 30 per cent is simply bad policy.
He says there are just so many negatives with this proposed tax that it’s difficult to know where to start – taxing unrealised capital gains (especially for farms and small businesses), the refusal to index the cap, its potential impact on venture capital or the fact that it addresses a legacy issue – large SMSF balances – that was resolved with the introduction of caps in 2016.
“Taking the last issue first, it was implemented because the Government believed the baby boomers have too much money in superannuation, that those tax concessions are disproportionately enjoyed by people with large super benefits.
“So, they’re putting in place a policy that’s going to affect a lot of people in the future to address an issue that’s been resolved. It just doesn’t make any sense. Nobody in the future is going to have a $20 million fund because we’ve got the caps to guarantee it doesn’t happen.”
What annoys Ali is how Federal Treasurer Jim Chalmers and Prime Minister Anthony Albanese continue to claim it’s a modest proposal.
“Tell that to the estimated 17,000 SMSFs that have a farm where the property is in their fund. They did what they thought was the right thing to do in a commercial sense, and, certainly, it’s totally legal. Now, because of this proposed tax, they might end up having to sell the farm to pay this new tax.”
As is often the case with a proposed tax, the law of unintended consequences takes effect. What seemed a straightforward tax on earnings on balances exceeding $3 million is now anything but, with venture capital emerging as a potential casualty.
As Ali highlights, these people put their balls on the line. “They take an enormous risk chasing the big payout. But with the potential to tax unrealised gains, they could be hit with a tax bill before they realise their investment via a trade sale or IPO. It’s going to knock a lot of the stuffing out of that seed capital market and that’s to Australia’s detriment.”
It’s not just farmers, small businesses and venture capitalist up in arms. The Australian Council of Public Sector Retiree Organisations wants its members to be exempt from the proposed tax, So, too, retired judges.
Indeed, the list of those wanting to be exempted just keeps growing. When coupled with Labor’s refusal to index the $3 million cap, its insistence that it will only affect 80,000 superannuants, with the implicit message the 80,000 are wealthy, is becoming farcical. Now it’s estimated to be 100,000, and potentially 250,000 in five years.
Ali says that the Federal Government has painted itself into a corner on this tax, and now they’re refusing to entertain any changes because it’s too politically embarrassing. “It’s franking credits 2.0 – an absolute disaster.”
Ali is not alone. When the tax was first introduced early 2023, it seemed uncontroversial – taxing 80,000 people with superannuation balances exceeding $3 million must have appeared relatively politically painless.
But Labor’s refusal to contemplate indexation and the proposed tax on unrealised capital gains, in particular, have complicated the issue. As it stands, Labor is struggling to enlist the support of the Senate crossbench to get the legislation passed.
Compounding the issue has been the entry of former Labor Prime Minister Paul Keating into the debate. He has been quoted as saying this tax proposal could turn superannuation into a low- and middle-income pension scheme and damage community confidence in the $3.9 trillion savings system, adding that the Government’s refusal to entertain indexation was unconscionable. A fellow architect of compulsory superannuation, former ACTU secretary Bill Kelty, has voiced similar sentiments.
Ali concludes that even if the legislation becomes law, the revenue take is unlikely to raise the estimated $2.3 billion in 2027-28, its first full year of receipts collection. “As they say, necessity is the mother of invention. Smarter people than those in Treasury or the ATO will come up with strategies, with ideas, with products, to mitigate against this tax.
“That’s not surprising. It’s a very badly thought-out proposal. I don’t think these people mind paying a bit more tax. I haven’t spoken to anybody that’s got a lot of money in superannuation who’s said they’re opposed to paying a bit more tax. But they absolutely detest this form of extra tax.”
