As the government’s new super tax proposal recently came under scrutiny in Parliament, the SMSF Association is spearheading opposition to what it views as problematic aspects of the legislation, particularly the taxation of unrealised capital gains.

Taxing unrealised gains: A “dangerous precedent"

Under the proposal, a 30% concessional tax rate would be applied to future earnings for superannuation balances above $3 million starting July 1, though this measure is yet to become law.

Peter Burgess (pictured above), CEO of the SMSF Association, has voiced strong concerns over the new tax’s approach to unrealised capital gains, saying it establishes a concerning precedent for future tax changes in Australia.

“For almost 40 years Australia’s tax system has clearly delineated between income and capital gains tax, with the latter only payable on the realisation of an asset,” Burgess said in a media release.

“This new tax turns existing tax policy on its head by treating the increase in the price of an asset as income received during the income year. Furthermore, when the asset is eventually sold, the capital gain may be subject to capital gains tax, subjecting taxpayers to double taxation.”

Challenging taxation on paper profits

The association’s submission to the Senate’s economic committee challenges the Treasury’s assertion that taxing unrealised gains is already part of the tax system, labeling it as “somewhat misleading.”

Burgess stressed the unique circumstances under which capital gains are currently taxed and warned of the complexities and inequities the new tax could introduce.

He elaborated on the practical difficulties of taxing paper increases in asset value, including the potential for taxing investors on unrealised gains and the administrative complexities that could follow.

“This should send a shiver down the spine of all investors,” Burgess said, stressing the importance of reconsidering the proposal’s implications.

Burgess concluded with a call for careful consideration and dialogue, advocating for a superannuation system that remains equitable without adding undue complexity or cost.

“By any measure, taxing individuals on amounts they have not received, or may never receive, is a radical departure from existing tax principles and a crude method of addressing super wealth and wealth inequality,” Burgess said.

“It is important, not only for those who will be unfairly impacted by this new tax now, but also for future tax changes, to stand against this approach.”

Taken from the Australian Brokers News on April 9, 2024