“In the case of superannuation funds that hold illiquid assets that cannot be fractionally realised (such as real estate), to fund tax liabilities, taxpayers may need to arrange alternative funding or place reliance on third-party lenders, which may prove practically difficult where a taxpayers’ assets are consolidated in a superannuation fund, given the inability to pledge superannuation fund assets as security for debt,” the IPA said in its submission.

“These funding and cash-flow challenges will be amplified considerably for small-to-medium sized business owners, who very often hold real property that is used in the course of carrying out their business in a self-managed superannuation fund; in such a case, realising real property assets used in carrying on a business will not be a feasible option and taking on expensive third-party debt will add a significant cash-flow burden and place pressure on operating margins in their business.”

The IPA urged Treasury to allow taxpayers who would be affected by the Proposed Reforms the choice and opportunity to restructure their affairs in a way that would minimise the compliance burden and complexity that would arise if the Proposed Reforms are implemented as currently reformed. 

“The IPA considers that this would be fair and reasonable, given that superannuation balances have been accumulated in compliance with historical contribution rules and taxpayers have acted in good faith,” it stated.

It said that most significantly, if the Proposed Reforms are implemented as currently proposed, taxpayers affected by the Proposed Reforms will be subject to tax on a basis that no other Australian taxpayer is presently: tax on unrealised income. 

“We respectfully submit that this is an unfair and inequitable distortion of Australian tax law and jurisprudence,” it stated. 

“Moreover, it disproportionately affects a segment of the Australian tax-paying population, who have not engaged in egregious or aggressive tax planning behaviour, but rather have acted in compliance with historical superannuation contribution rules.”