Since the last edition of this newsletter, the bombshell has dropped that the Albanese government is looking to impose an additional 15 per cent tax on superannuation balances in excess of $3 million. The announcement on 28 February has since raised more questions than provided answers for all superannuation stakeholders.
And there really is so much to unpack here that I’m not sure where to begin, but I will try to focus on some of the bigger-ticket items.
Firstly, I think it has completely destroyed Treasurer Jim Chalmers’ message that the objective of superannuation needs to be legislated before any future policies can be determined because without this crucial element how does the government know what it is trying to achieve. Well I don’t believe this objective has been passed into law and yet we still have this policy proposal in front of us.
Secondly, I think it makes for poor policy when one segment of the superannuation industry is impacted more than any other, and you guessed it, that of course will be SMSFs. The SMSF Association has itself admitted this will be the case.
And the fact this proposed policy will have an SMSF bias means it is you who will have to start strategising how to mimimise the impact of it and this has the potential to be more costly for the sector.
To begin with it may mean more intricate administration practices for trustees. While the government has said the ATO will have the responsibility of monitoring member balances for the purpose of the new tax, accounting procedures for SMSFs could be set to change in an effort to ensure a person’s total super balance is as low as it possibly can be regardless of whether it’s over or under the $3 million threshold.
In short, SMSFs might have to adopt the practice of including accrued tax in their accounts so that a member’s balance net of tax will be the one reflected for assessment against the new cap.
Valuations will become even more critical than they are now. As it is there is a greater onus on SMSF trustees to have accurate and up-to-date valuations for their asset holdings, particularly with regard to property. But you can imagine the government will have increased vigilance in policing this to eliminate the chance of having undervalued portfolios, thus shrinking the net for its new tax.
And you can bet auditors will have more pressure placed upon them with this in mind so there will be no avoiding this flow-on effect for SMSF trustees.
Further, the need to even out or equalise member balances will be vital now as well seeing the measure will be applied at an individual level.
You don’t want to have a fund where one member has a balance of $3.5 million and the other a balance of $1 million because the person with the higher balance will be caught by the proposed measure. However, if these member balances were restructured so one perhaps reflects a total of $2.5 million and the other $2 million, no tax would be incurred under this policy.
But perhaps the most damaging element of this change to the superannuation framework is the inevitable loss of confidence the Australian public will have in the system. Anecdotally this sentiment has already begun.
How all of this will play out is unknown, but for the $2 billion in government revenue the measure is expected to raise you have to ask whether it’s worth it.
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