BUSINESS and agricultural groups have raised concerns about the Federal Government’s plan to revive its increased taxes on superannuation balances – which would impact thousands of Australian farms held in “self-managed super funds”.
Last week, Federal treasurer Jim Chalmers announced that the Government was going to revive its plan to put a 30pc tax on superannuation balances worth $3m or more, including for capital gains on assets that had not been sold or liquidated.
“What we’re proposing here is still very concessional treatment for Australians with very big superannuation balances,” the treasurer said.
“We’re taking the current concessional treatment and making it slightly less concessional, but still concessional. This is a very modest change to the taxation of very large superannuation balances. It reflects about half a percent of people.”
But the National Farmers’ Federation disagrees that the changes are modest and has been campaigning against them for the past three years. Its main concern is for farms held in self-managed super funds for succession planning reasons, where the shareholders are parents and children.
NFF president David Jochinke said farmers entered into these agreements in good faith on the premise that they were only paying tax when income was generated, which he said is the way it should be.
David Jochinke
“People have been using this as a legitimate succession planning pathway, they have made decisions based on the idea of paying tax when money was drawn out or crystalised,” he said.
“Now they are paying double the amount of tax and having to pay it before the fund is crystalised.”
Using figures presented by the SMSF Association to a Senate committee, the NFF estimates that more than 17,000 SMSF accounts in 2021/22 held farming land. It said more than 3500 funds would attract the tax on day one and it expected that number to increase with inflation.
Laws stall in the Senate
The Government tried to pass the tax changes in the last term of parliament, however, the bill could not pass the Senate before the end of the term.
Without support from the Coalition, Labor will likely need to work with the Greens to pass the legislation through the Senate.
The Greens are proposing to lower the threshold from $3m to $2m.
Broader business community opposes tax
When the tax was raised last term, a Coalition of business organisation, including CPA Australia, Chartered Accountants Australia and New Zealand and Financial Services Council came together to oppose the bill.
In responding to last week’s announcement, CPA (Certified Public Accountants) Australia said taxing unrealised gains was a slippery slope.
“Australia’s tax system is built on the principle that tax is paid on income once it is realised – when it is actually received,” superannuation lead Richard Webb said.
“Taxing unrealised capital gains would mean taxing people on the paper profits they haven’t yet accessed, which is not only inequitable but also administratively burdensome. CPA Australia believes this approach is inconsistent with good tax design and could have significant unintended consequences for investment and confidence.
“If this precedent is set, where are the limits?”
Push to index tax threshold
While the groups oppose the idea of taxing unrealised gains, they are also pushing for the Government to index the threshold if they are pressing ahead with the laws.
“The government cannot underestimate the impact of inflation on superannuation. The cumulative effect of inflation means that a dollar today has the same purchasing power as approximately $0.34 in 1985. This reduction highlights the necessity of preserving the spending power of superannuation savings over one’s working life,” Mr Webb said.
“Bracket creep is already having a silent eroding effect on personal finances. Allowing this further erosion of superannuation savings is contrary to the fundamental principles of our tax system.”
Div 296 affects many more people than one would think at first.
For example, in a Mum and Dad fund, if each member has a $2m balance, and one dies leaving their balance to the survivor, the survivor now has a balance > $3m and the fund’s income is taxed accordingly. That family is worse off simply because someone dies. The Commissioner of Taxation will be attending the funeral asking for his share.
In other words, Div 296 is ultimately a death tax.
Taxing unrealised gains is double taxation because CGT is also payable when the asset is eventually sold. There is no cost base adjustment for the tax on unrealised gains already paid.
The $3m threshold is too low to begin with, and because it’s not indexed many more will find themselves caught in the net.
How will this tax apply to Politicians and Snr Public servants. For example, Albanese will get in excess of $400,000 pa pension indexed. For a SMSF to generated $400,000 pa, that SMSF would need to have $8m lump sum. So will Albanese be taxed given $8m is $5m above $3m? if no, why not? if yes, how will his amount be worked out?
We already have a tax on unrealised capital gains in QLD. I own three investment properties and have just paid a tax bill of 11k plus on the estimated appreciated value of the land in FY23/24. How is this justified and I have no option other than to increase rents to pay this tax. This is a yearly tax on estimated increase in value of land.
This is bad policy. There are safer alternatives beyond this dangerous and unfair path
what the government wants everything and taxing super is a disgrace for all Australians. You
work had to have a comfortable retirement and then the government wants to tax you more for God sake get real. I can’t get a pension payment as I have to much money in the bank and have to use that first the reason was to have a comfortable retirement.
Taxing super on profits that have not even been realised yet is a totally flawed and unfair concept. This component needs to go as it makes no sense and may mean that people need to liquidate the underlying investments just to pay the required tax…
The other main flaw with the proposed changes is not adjusting the $3M cap for inflation. This will unfortunately capture the current generation that have a typical balance when they reach retirement age; this is not in keeping with the original idea off this tax as a wealth tax.
Although this tax does not apply to me. I have concerns of the implication of this tax . The reason I say this is because Centrelink had a similar way of people Reporting income before it was actually received. It created incorrect income being reported to recipients being overpaid or unpaid. It should be done when the Capital Gain is received. If implemented (as has been reported) it will create a flood of applications for REFUNDS of Capital Gain that has been determined as incorrect. Therefore creating more cost to the Government.
Not fair or ethical as taxing unrealised gains results in double taxation .Tax also paid when asset sold and no credit for tax already paid on the unrealised gain..
in addition not a level playing field as defined benefit funds cannot be subject to unrealised gains as they are not supported by a pool of assets. They are paid out of Government revenue. They also benefit from indexation.As such they escape the two most negative aspects of this legislation.
This needs to be called out and hammered to ALP .
This should at the very least exclude farming land as we want to encourage our farmers to continue to produce our food. Farmers are at the mercy of our land of droughts & flooding rains- they don’t need extra tax on unrealised gains as well to worry about.
Jim Chalmers says that the proposed new tax on superannuation member balances of in excess of $3 million “reflects about half a percent of people.”
I note that Dr. Chalmers is being very disingenuous in using the word “reflects”, instead of “impacts”.
By my reckoning, half a percent represents approximately 135,000 of all Australians. On this basis, of the approximate 20 million Australians who have superannuation benefits, about two thirds of a percent would be affected.
In any case, I would challenge Mr. Chalmers to provide calculations for the basis of his comments.
Even if there were only 135,000 taxpayers who would be impacted by the new tax in its first year of operation, which I believe is a massive underestimate, the failure to offer any indexation of the threshold, will ensure that more than a million taxpayers could well become subject to the new tax within the foreseeable future, and in any event, many members of industry or institutional super funds, who have balances well below the threshold, are expected to be adversely impacted in some manner by the implementation of the proposed Division 296 tax.
We had a 20 plus year task to put money in our SMSF working 6 days a week putting in super over decades. The government encouraged us to do so. We could have simply negatively geared property instead. We have high costs running the fund and get farbless taxable deduction rate than outside super.The main benefit of lower taxes when we retired has been retrospectively and unfairly taken away. This is causing us major distress in our 70s It is elder abuse !
in Australia you are punished when you retire,you work hard all your life and taught to be successful put money aside for your retirement but the liberal party and greens lowered the asset test and labour stained from voting on it so more people were caught out and don’t receive a pension.
I believe the current approach is fundamentally unfair. Farmers are the backbone of our country and play a critical role in sustaining our economy and ensuring food security for all Australians. Unlike many other sectors, their financial operations often do not rely on liquid cash but are instead built around asset-backed financing. It is not uncommon for them to mortgage their land or property in order to increase their paper value and maintain the cash flow necessary to keep their farms running.
Penalising them based on asset valuations—without considering the realities of their cash income and reinvestment needs—overlooks the unique challenges faced by those in primary production. This approach risks destabilising their livelihoods and may force many to abandon the very farms that feed our nation.
Ultimately, such policies erode the Australian Dream—a vision of hard work leading to a secure and dignified retirement. We should be supporting our farmers, not creating additional financial burdens that threaten their future and that of our national food supply.
that. dream has already been eroded. pensions are paid to people who have not saved for their retirement and who are therefore able to pass the assets test
I hate to say this , but the last time I looked a profit or capital gain occurs when an asset is sold @ a higher price than when bought . while it’s sitting in the bottom drawer , it might go up in price , but it’s not a capital gain until sold
Only a money thriving incompetent government could even think of taxing someone who hasn’t got the benefit of the money to start with.
But not to worry, the ‘old boys network’s is looking after Politicians and the select few who have over $3 million in Super by making sure it doesn’t affect them 🙄
this is a fair tax, when wage earners pay top rate, smsf are paying 15%. a high time this inequity was address.
Tax of unrealised gain has been normal practice for decades in the form of rates and land tax, charged on council valuation. No slippery slope here, just rich people avoiding paying their fair share.
TAXING UNREALIZED CAPITAL GAINS AS PER LABOR POLICY.
Peter Brugess, SMSFA, is an optimist, and good for him, as he should be in his comments concerning negotiations with the government and the Greens.
However, I doubt the government really does expect to raise anywhere near the estimated capital gains tax on super from unrealized capital gains !
Why, you ask ?
They know or should know, that people who followed the Law concerning super and contributed and have a balance exceeding $3m are not going to just lay down and get smashed with unrealized capital gains tax. They are just not that stupid.
The know that these people will say, enough is enough, let’s just remove it from the super fund after starting a pension thereby getting the money out tax free, where possibly of course.
However, I believe this is precisely what the Labor Governement wants. Each way they “gotcha”. So, it is back to the old days !!
Get it out of super and more than likely into a descretionary trust with corporate beneficiaries. Then it will be taxable anyway.
However, you will get the CGT 50% discount and negative gearing thereby making the difference in taxation negligible. At least in the accumulation stage. Smart minds will be all over this like a rash on a babies bottom !!
Property will be one of the biggest problems especially farmers and people who put their business premises into their super fund or related unit trusts.
If you are a self funded retiree, you are totally screwed and you are back into the taxation system: returns, accountants, the full catastrophy.
There have been many senerios and modellings of which is better for wealth accumulation: inside super or outside super. These are usually done by “super” administrators or “pro-super” pundits, even actuaries and the conclusion is that super usually beats outside super in net investment return, but not by a massive amount.
There will no doubt be many more of these modellings by “promoters” of both persusasions. This wil be facinating to watch. and remember:
“I pay whatever tax I am required to pay under the law, not a penny more, not a penny less… if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”
Kerry Packer
This will now change super to some degree. Governments change Rules,Taxation Laws, to move, incentivise, the public into the area they desire at a particular time. The public respond, but then they respond to well, and the government of a different persusion or time reverses those incentives. Just like what is happening right NOW!
Bad luck for the older citizens who followed the Law. You are screwed when you are least able to respond: ” life’s a bitch and then you die”, as the saying goes.
This is a perfect example. However, taxing UNREALIZED capital gains is an entirely new ball game.
This biggest concern is whether taxing unrealized caiptals gains in super is a precuror to it being introduced elsewhere. Not a good omen !
When you have a big spending government, you will inevitably get a BIG taxing government to pay for all the “free” stuff. Obviously Labor does not believe it will dampen “aspirational” business entrepreneurship.
This is somewhat true.
There are many 25 to 45 year olds who no longer see much benefit in “busting a gut” to get ahead when you can just get a government job at a very reasonable income( eg. $100,000 to $130,000 age 33 ) and just maximize the perks: WFH; Flex-Leave; OT; maturnity/paternity leave; free childcare etc,etc. I have many in this age bracket with this precise attitude.
Let the others “bust-a-gut” and pay the tax. Let’s just “USE” or “milk” the system tp maximize “my” benefit. Smart strategy !!
If this tax does become Law, the “targets” must conclude, “well it was good as long as it lasted and we accumulated much, now it is back to the old ways”; with a corporate tax rate for small business at 25% plus the 50% CGT exemption plus negative gearing plus the use of Trusts, there are plenty of tools for the switched on Tax Advisors and Accountants.
Deja vu all over again !! ???
Bearing in mind a very large portion of Agricultural holdings are at or above the 3 Million cap is very disconcerting indeed. The technicality of initiating a tax on un-realised capital gains is in itself horrific. Land, and other related improvements may require valuations on an annual or biannual basis, and who will be qualified to do those valuations?
Will the Valuer be required to be a registered Valuer, and at what cost? In two years time if the value of the asset depreciates how will the calculation be made,.
Will it be back dated a year, or how will the time of the reduced valuation be calculated, and when it is when would the refund of the gain be refunded? Secondly how is a farmer with a large mortgage going to pay for a gain on an un-liquidated asset. This is the tax legislation from hell!!
There will be no refunds. So far it only applies to assets in super funds but there is concern it will shift to other assets.
If there is a fall in value, it will be held in credit against the next rise, so you may never see it.
It is actually a double tax as when the asset is sold you will still have to pay capital gains tax.
This is truly evil policy. We should have heard much more about it before the election.
yes why didn’t Peter Dutton make more of it. The election result may have been different.