Superannuation, Tax

Soft cap risks double taxation

Super earnings double taxation

The earnings tax on superannuation balances above $3 million is a wealth tax and will subject fund members to a form of double taxation.

The Institute of Financial Professionals Australia (IFPA) has argued the proposal to levy an additional 15 per cent earnings tax on total super balances above $3 million is essentially a wealth tax and taxing unrealised gains within those funds constitutes double taxation.

IFPA head of super Natasha Panagis suggested the earnings tax will effectively subject members to double taxation on their assets within a single year and that the proposal fails to deliver on the stated policy objective of promoting fairness in the superannuation system.

“Although it seems to be a simple way to work it out, it doesn’t deliver [on] the policy outcomes. It’s actually [got] nothing to do with the earnings generated by a fund. It’s rather just based on movements in a person’s total super balance, which effectively includes any unrealised capital gains,” Panagis noted.

“You can argue [the proposed tax is] a form of double taxation on the same assets. You pay tax every year on an asset on the proportion that exceeds $3 million and then you pay tax on it again when it is sold.

“So this means a person will pay extra tax on the earnings as it continues to grow and also on unrealised earnings. You [also] won’t get a refund for any tax that you’ve previously paid.”

She further pointed out that including taxing unrealised gains in the proposal, as outlined in the government’s consultation paper on the matter, could establish a precedent for its potential broader application within the industry in the future.

“Taxing unrealised gains is an unprecedented and profound change. [It’s] really quite risky if this does get legislated. It does seem to be a wealth tax,” she said.

“If they legislate it for super, who’s to say that it won’t also apply to other entities such as individuals, trusts and the like? It goes against our current tax regime; we only tax capital gains when they are realised.”


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