The Tax Institute welcomes the opportunity to make a submission to the Senate Economics Legislation Committee (Committee) in respect of its inquiry and report on the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (the Bill) and accompanying explanatory memorandum (EM).
The Bill contains several measures that impact Australia’s taxation and superannuation systems. These include:
- Schedules 1 to 3 – better targeted superannuation concessions;
- Schedule 4 – disclosures about recognised investment activities;
- Schedule 5 – frequency of periodic reviews;
- Schedule 6 – miscellaneous and technical amendments;
- Schedule 7 – licensing exemptions for foreign financial service providers; and
- Schedule 8 – amendment to the Payment Systems (Regulation) Act 1998 (Cth).
Our comments in this submission are limited to Schedules 1 to 3 to the Bill.
Schedules 1 to 3 to the Bill propose to insert new Division 296 into the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) to give effect to the Government’s announcement to introduce an additional 15% tax on earnings on superannuation balances above $3 million. We acknowledge the Government’s decision to impose a higher rate of tax on a subset of taxpayers. Our comments in this submission are aimed at ensuring that Schedules 1 to 3 to the Bill are appropriately designed and implemented to achieve the intended policy objective, within the principles of good law design.
If implemented as drafted, proposed Division 296 will tax unrealised capital gains, an approach that is inconsistent with Australia’s current approach of taxing realised capital gains under the capital gains tax (CGT) regime. The Tax Institute has concerns that Division 296 will set an undesirable and inappropriate precedent for future tax proposals in this regard. We note that the taxation of unrealised gains has historically been used only in the context of anti-avoidance provisions and should not be a feature in the design of this, or future, general taxation measures.
The taxation of unrealised gains is rife with issues, such as cash flow misalignment and increased compliance costs for taxpayers. The Tax Institute is of the view that if this aspect of the measure is to proceed, it should not be treated as an acceptable precedent for future tax reform proposals of any kind. In our view, there are other preferable alternatives to the proposed approach. For example, in the case of self-managed superannuation funds (SMSFs), it may be possible to introduce an alternative calculation based on an SMSF’s actual taxable income for some members, to minimise the mechanism of taxing unrealised gains. Alternatively, the Government should undertake consultation with superannuation funds, industry bodies and key stakeholders to determine whether a deeming approach could achieve the policy outcome without taxing unrealised gains.
We also recommend the Government should consider making key changes to the draft Bill to better ensure equitable outcomes, including:
- indexing the proposed threshold of $3 million;
- introducing a loss carry-back mechanism to allow individuals to recognise unrealised losses, as the proposed approach may result in some instances where taxpayers will never have the opportunity to use losses carried forward, or could be placed under significant hardship;
- amending the adjusted total superannuation balance (ATSB) to account for the disproportionate impact on SMSFs;
- allowing for payment of the Division 296 tax on unrealised gains to be deferred until the gain on the relevant asset(s) is realised by the superannuation fund — this would better align the operation of Division 296 with Australia’s current approach to CGT;
- excluding amounts withdrawn to pay a superannuation tax liability being added back into the ATSB and therefore being subject to Division 296 tax;
- aligning the treatment of certain disability and injury payments with the proposed treatment of structured settlements; and
- undertaking further consultation on the appropriate treatment of proceeds and payments relating to family law splits.
We consider that taxpayers and their advisers should be readily able to access the data used by the Commissioner of Taxation (Commissioner) in determining the amount of the tax. This would allow advisers to easily verify the Commissioner’s calculations and rely on the data when creating financial plans for clients. The administration of Division 296 would benefit from taxpayers being able to access a streamlined Australian Taxation Office (ATO) internal review mechanism that does not require taxpayers to object or seek a judicial review in the first instance where disputes regarding the Commissioner’s calculations arise.
Our detailed response is contained in Appendix A.
The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.