$3m super tax on the backburner amid Senate hurdles

Following a barrage of media attention from the mainstream media in the past two weeks questioning the government’s plan to tax unrealised gains, the bill has been put on the backburner and will not get its time in Parliament until after the winter break.

Just last month, The Motley Fool chief investment officer Scott Phillips called Labor’s plan to double the tax on earnings for super balances above $3 million “reckless, silly, and stupid”.

He suggested this plan would ultimately cap both super and deductions without explicitly doing so.

Phillips also criticised the taxation of unrealised gains, a measure that many have opposed in recent days.

The bill was expected to hit the House of Representatives for a third time last week and, while it was believed that it would pass the lower house, it was anticipated to face hurdles in the Senate.

However, after being delayed last week and again on Thursday, speculation is rife, particularly within the fiercely opposed SMSF industry, that the government is rethinking its approach.

Aaron Dunn, CEO of Smarter SMSF, said he believes there is a lot of backroom number crunching taking place following the resignation of Senator Fatima Payman from the Labor Party.

“She may have a different view on this legislation than the party line, and now the government will need to make sure it has the numbers it needs to get it through,” Dunn said.

According to Dunn, it appears that the government, although not wanting to go back to the drawing board, may be reconsidering its position to secure the numbers needed for this bill to pass.

Meg Heffron, director of Heffron, described the proposal as one of the most controversial taxes she has seen in years due to its design. She told ifa’s sister brand, SMSF Adviser, that: “If this really is a sign of the government reconsidering the current approach, I will be incredibly pleased.

“The government is perfectly within its rights to want to reduce super tax concessions for those with very high balances but it has to do it in a better way than this tax. I can’t believe they kicked such an own goal by prioritising simplicity for large funds over actual fairness to the individuals who will be paying the tax.”

Peter Burgess, SMSF Association CEO, said the association has opposed this legislation from the outset due to its poor design.

“Not indexing the $3 million threshold and taxing unrealised capital gains is a crude and grossly unfair way of addressing super wealth inequality. The consequences for the SMSF sector and the flow-on effect to the small business sector, farmers, and venture capitalists, are significant,” he said.

“The impact on future tax policy should also not be underestimated. This is why we have been fighting so hard in Canberra for sensible changes to the proposed legislation.”

Last week it was revealed that independents David Pocock and Jacqui Lambie are gearing up for a fight in the Senate, particularly over the taxation of unrealised gains.

The Greens are also opposed to the legislation in its current form but advocate for lowering the $3 million threshold to $2 million.

Last year, when the government first announced its plans to raise the concessional tax rate for balances exceeding $3 million from 15 per cent to 30 per cent, the superannuation industry largely commended the perceived push for equitability.

Industry Super Australia (ISA) backed the proposed reforms, stating the changes would help level up the super system for all Australians.

Meanwhile, Dr Martin Fahy, former CEO of the Association of Superannuation Funds of Australia (ASFA), voiced cautious optimism in reading the “significant” measures.

Also at the time, Aware Super CEO Deanne Stewart stated the fund stood against “tinkering” with super but acknowledged the need for fairness in the system.