The Tax Institute welcomes the opportunity to make a submission to the Treasury in relation to the consultation paper on better targeted superannuation concessions (the Consultation Paper).
In the development of this submission, we have closely consulted with our National Superannuation Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.
The Consultation Paper outlines further details of the Government’s announcement regarding a proposed additional tax of 15% on superannuation balances above $3 million (the additional tax). If implemented, the additional tax could set an unwanted and precarious precedent regarding the taxation of unrealised gains.
The Tax Institute does not support the taxation of unrealised gains as a principle that should be used in Australia’s taxation and superannuation systems. We consider that the additional tax should be implemented in a manner that does not tax unrealised gains. However, if the Parliament legislates the additional tax as proposed in the Consultation Paper, we consider it an imperative that the taxation of unrealised gains is quarantined to just this measure and is not used as a precedent for future taxation measures.
If the measure is implemented as proposed, we recommend that further adjustments are needed to the proposed total superannuation balance (TSB) that will form the basis of the calculation of the additional tax. These adjustments will better ensure that the tax is imposed only on the earnings of the superannuation balance.
Consideration should also be given to the payment options available to taxpayers to allow them to meet the significant tax liability imposed by the additional tax. For some taxpayers there will be considerable liquidity pressures caused by the imposition of the additional tax. The rules should recognise the financial impact of the misalignment between the tax liability and the associated flow by allowing taxpayers extra time and a greater range of payment options.
The Tax Institute recognises the difficulties associated with ensuring commensurate taxation between defined benefit interests and non-defined benefit interests. The fundamental differences between the two interests make it difficult to ensure that the proposed measure will be sector neutral. Modifications may need to be made to the proposed approach to ensure that the additional tax, as imposed on defined benefit schemes, achieves a better balance between increased compliance costs and the desired outcome. We also consider that the proposed $3 million threshold should be indexed, recognising changing economic circumstances over time.
This submission also takes account of discussion and feedback at roundtable meetings convened by representatives of the Treasury. A number of representatives of The Tax Institute attended both the Sydney and Melbourne meetings and were grateful for the opportunity to participate and be heard.