Treasury released the details of its calculation for the threshold in a fact sheet earlier this month.

“Their methodology was not based on taxation principles at all. Instead, it applied an algorithm to a change in the member’s total super balance. This is not a tax, it’s a charge,” said Mr Busoli.

Discussion around the proposed calculation has been focused on the unreasonable taxation of unrealised gains, but there hasn’t been much analysis on whether alternative strategies would improve the end result, he noted.

“As the ATO is the only source of consolidated fund information and, in any case, the superannuation sector would not tolerate an additional administrative burden, the ATO has, quite rightly, been given the responsibility of administering this proposal,” explained Mr Busoli.

“This required Treasury to consider what the ATO was capable of, considering the data they hold. The ATO holds individual member total super balances, contribution and withdrawal information across multiple funds. They do not hold individual member investment or taxation information.”

Mr Busoli said this left Treasury with only two alternatives, creating an algorithm intended to emulate an additional tax, as they have, or adopt a deemed return method.

“Under an alternative deeming method, a rate would be applied to any member balance in excess of the $3 million cap. A 15 per cent tax would then be levied on the result. This method would justify the taxation label, but would it be better? It depends,” he stated.

The deeming rate used would significantly affect the outcome, he noted.

“My favoured rate is the 4.7 per cent Div 7A rate, but I suspect Treasury would prefer the much higher (10.46 per cent) GIC rate. Compared with the current algorithm, there would be winners and losers,” he stated.

“In a year of market downturns where the member’s total super balance would decrease (but still be over the cap) deeming would result in a tax bill in contrast to the proposed algorithm that would not. My own analysis of the differences leads me to believe that, in general, the current algorithm produces the more favourable result for the member.”

Mr Busoli noted that the proposed design still contains numerous shortfalls that need addressing.

“However, our discussion must focus on what is administratively possible as well as what is equitable,” he said.