In a recent episode of The Conversation podcast on ABC, Treasurer Jim Chalmers addressed concerns around the proposed tax on superannuation balances exceeding $3 million. He defended the government’s position, saying alternative models would result in the costs being spread across all members of a fund, rather than targeted at individuals with balances above the threshold.
Chalmers noted that Treasury advised the proposed method was the simplest and most effective, explaining:
“This is still a concessional tax treatment. It’s based on the value at the beginning and end of the year, adjusted for contributions and
withdrawals. This style of calculation already exists elsewhere in the super system, and if a loss occurs, it can be carried forward.”
However, Peter Burgess, CEO of the SMSF Association, took issue with the Treasurer’s comments, describing them as “disturbing and somewhat puzzling”. He stressed that large funds will need to implement substantial system changes to support annual valuations of defined benefit pensions and meet new reporting obligations to the ATO.
Even if only required for exceptional cases, Burgess highlighted that these costs will likely be borne by all members—not just those with balances above $3 million. He argued that the proposed approach, which involves taxing unrealised capital gains and tracking unapplied carried-forward losses, is overly complex and indicative of insufficient consultation with industry.
During the consultation period, the SMSF Association presented several simpler alternatives, including a deeming-based method. They developed detailed models to demonstrate how the deeming approach—using the 90-day bank bill rate—could achieve similar policy outcomes with significantly lower tax liabilities over the long term.
While acknowledging that any model will produce both “winners and losers”, Burgess said the deeming approach offers a more consistent and predictable tax outcome, avoids the need to carry forward losses, and simplifies administration. He added that the Association would only support this model if the deeming rate is set at the official cash rate.
Initial analysis by the SMSFA indicates that most clients would pay less tax under a deeming method than under the government’s current proposal.
David Busoli, Principal at SMSF Alliance, also suggested an alternative framework. He proposed that the ATO’s current formula remain the default where member-level income reporting is unavailable. However, where funds can report actual income (including realised capital gains, less concessional contributions and pension-exempt income), that data should be used instead.
His approach would apply a flat 15% tax on the earnings attributable to balances over $3 million, similar to the current proposal, but without taxing unrealised gains—provided actual income reporting is possible. This would give funds until 30 June 2026 to implement necessary reporting changes if they choose to.
Busoli acknowledged there would be one-off costs, particularly for APRA funds, but noted that most SMSFs already have the reporting frameworks in place. He also pointed out that this model would still allow the tax to commence on 1 July 2025, preserving the government’s revenue forecast.
Concerns around data manipulation through asset segregation were addressed as well, with Busoli reminding that such practices are already prohibited under current legislation. He also proposed practical data filtering to reduce reporting burdens by excluding individuals with zero taxable balances or where individual income data is unavailable.
Courtesy Accountants Daily
