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SMSFA lobbying for deeming rate calculation
The SMSFA is lobbying the parliamentary crossbench to push for an alternative to the proposed calculated earnings method in the $3 million super tax legislation.
Peter Burgess, SMSFA CEO, said in the latest SMSF Adviser podcast it is likely the government will push ahead with the proposed approach to calculating earnings using unrealised gains.
“Our focus right now is on making sure this tax works as fairly and equitably for all superannuation members,” he said.
“The only way you can introduce a tax on earnings – superannuation fund earnings which is payable by the individual – is to ensure the tax is levied on taxable income but what's being proposed is that the tax will also be unrealised capital gains as well.”
Mr Burgess said over the past few weeks that the SMSFA has been having discussions with Teal MPs in the lower house and the Senate crossbench.
He said there is concern from both that the new tax will target unrealised gains.
“There is an acceptance from the crossbench that it’s not good policy and we're working with them to try and find an alternative calculation of earnings, one that doesn't involve funds reporting actual taxable earnings, because we know that's not going to be accepted by the large funds and others outside the SMSF sector,” he said.
Instead, Mr Burgess said the SMSFA is now focusing on pushing for calculations to be based on the deeming rate.
“There will be winners and losers with deeming but by a process of elimination we can't see any other way of dealing with this issue,” he said.
“Our support for a deeming rate approach would only be on the basis that it's pitched at the official cash rate. We don't think a rate any more than that would work.”
He added from the association’s initial calculations that if the deeming rate is at the 90-day bank bill rate, most clients will pay less tax under this approach compared to the Treasury's proposed approach.
“And deeming would have the other added benefit of being much simpler to apply so we wouldn't have to worry about carrying forward negative losses,” he said.
“It would be more predictable in terms of the outcomes which we think is a big problem with the government's proposed approach because they are linking the tax to performance in investment markets and the liability could be very different from one year to the next.”
He continued that with Treasury’s approach it is hard to manage liquidity because of the uncertainty of the market and the end result will be clients holding more cash than they have to.
“This will have a long-term impact on their performance which is why we think deeming has a few advantages over that,” he said.
I don’t think the SMSF association should be putting forward proposals for alternatives to this tax. They should take a position on behalf of members: oppose it or support it. Opposing it is the strongest message we can send. By all means elaborate and point out the shortcomings (& downright absurdity) of this tax to politicians and policy makers, but don’t propose alternative taxes that, if successful might then be labelled by clients as the “SMSFA Tax”!-1- Market Value of property is what a willing buyer and willing seller without any undue pressure are prepared to transact, given that the SMSF Auditor's blessings are required for this magic figure to decide what the Total Super Balance and what the tax the member is going to pay, opens a whole can of worms.
My crystal balls tells me that many auditors will be auctioning their license in their "Audit Fee" for the lowest valuation approval. And ATO will have a field day with funds where they see property valuations not going as per median prices of various cities.
My advice to my kids - forget actuarial studies - become a commercial property valuer.0 - Deeming is a simpler approach though it does have 2 issues. 1. A tax bill will arise even in years of negative growth. 2. The deeming rate must be fixed at a reasonable level such as the cash rate - as you've said, Peter. The problem with this whole process is that Treasury have their eyes fixed on raising $2b by whatever formula achieves this is primarily a tax grab spun as an integrity measure. The deeming rate you have in mind would not achieve this so I expect their opposition will be implacable. I strongly suspect that you will have no alternative but to reject this whole proposal and do your best to have it blocked in the Senate.0
- Could it be that the TBC will be $2m from 1st July 2024? We will know in Jan 2024. With CPI tracking as it is, it could very well get there, just. Seems so silly to have a $3m threshold as at June 30th 2026 when the TBC will not be too far behind by then. Considering that they wanted to catch the super funds over $100m Treasury really is grabbing at whatever they can get away with. It will be an auditing nightmare with valuations, and the extra thresholds are an added burden for accounting purposes.1
- Another thing we should be pushing for is to make the proposed limit equal to twice the TBC. So it would currently be $3.8m. This would then ensure indexation as it would be indexed in line with the TBC.1
- They should also consider revising the limit by making it double the TBC ie it would currently then be $3.8m. That way it will be indexed in line with the TBC.1
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