Have you noticed ever since the result was declared from the 3 May federal election there is a news item or public discussion every day about the proposed tax on total super balances over $3 million, also known as the Division 296 tax?
We have had economic commentators, ex-politicians, business leaders and even former Reserve Bank of Australia governor Philip Lowe saying it’s bad policy and Treasurer Jim Chalmers should not go through with it.
In one sense I’m pleased these individuals have found their voices to oppose what is clearly a really badly thought out and will be a badly implemented measure. But my question to all of them is why didn’t this happen before the election when their commentary could have truly made a difference.
Still, better late than never and if it does sway Canberra’s attitude here, I will take my hat off to all of them but it could already be too late because the predicted suboptimal flow-on effects are already surfacing as individuals to whom the new tax will apply start to run for cover.
Wilson Asset Management chair and chief investment officer Geoff Wilson weeks ago noted people were beginning to rip money out of their SMSFs and investing the proceeds into the family home, being the asset that still enjoys a capital gains tax exemption.
Now senior SMSF stakeholders are alerting us to the fact some questionable trustee practices regarding asset valuations are surfacing in an attempt to either avoid having the new tax applied to them or finding ways to mitigate how big their Division 296 liability will be.
In the first instance, trustees are trying to secure inaccurately low valuations to bring their total super balance below the $3 million threshold, while at the other end of the spectrum members are wanting to confirm higher-than-normal asset values to ensure the year-on-year change between opening and closing balances remains minimal.
Either way it’s a bad result for the sector as what it is doing is creating a compliance rabbit hole that will no doubt undermine the integrity of SMSFs.
Basically the reaction is opening the door for two possibilities. One is for dodgy operators offering ‘whatever you want it to be’ asset valuations as a means to the goal of defeating Division 296 capture.
The other is for trustees themselves formulating their own flawed valuation techniques to suit their interests. To this end, we will no doubt see trustees once again relying on the myth an asset valuation only has to be performed once every three years.
Evidence of these practices is even now being noticed by the SMSF auditing community, leading to a warning of a greater number of qualified audit reports.
This is a seriously poor result for the sector. In recent times the ATO itself has praised the SMSF community for the level of good compliance it has achieved, but this one policy could undermine everything.
Not only will it have the potential of damaging the reputation of the space, but if additional outside scrutiny is required, it will in all likelihood have the unwanted effect of driving up administration costs.
This measure was in response to a sum total of 32 or 42 funds, according to former financial services minister Stephen Jones who was inconsistent about this number, and will affect 80,000 individuals who are pretty much all SMSF trustees, so there was no disguise as to where the policy bullseye was.
By potentially undermining the credibility of the sector, the new tax has the ability of doing more harm to SMSFs than just raking in more government revenue from it in a very egregious manner. The more cynical among us could suggest this would be an added bonus in the hindrance of a sector the Labor Party doesn’t care for.
In any case, it’s well and truly game on in the Division 296 tax maneuverings of SMSF trustees.
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