‘Stubborn’ Labor offers no compromises on $3m super tax

“We weren’t expecting the government to back away from the $3 million threshold but we did remain optimistic that they would change their measurement of earnings,” he said.

Labor first proposed taxing unrealised gains as part of the reforms in March, but faced widespread criticism from tax experts who warned it could force investors to sell illiquid assets such as property to fund the tax.

“But they haven’t done that ... instead, they’ve used an artificial calculation of earnings and will give rise to many unintended consequences and bizarre outcomes.

“We don’t think it’s the right approach, and they don’t have to do it – it’s not difficult for super funds to report actual taxable incomes.”

Mr Burgess suggested that the government was not serious about taking on feedback on the tax, noting that it had granted just two weeks for feedback on the proposed legislation. This follows the earlier consultation period for the proposal in April, which was also just a fortnight.

RSM Australia national director of superannuation, Katie Timms, said that the government had been “stubborn” in sticking to its original proposals and agreed the consultation period was too short.

“It does not change the definition of earnings and stubbornly maintains its original and illogical position that Australians should pay tax on unrealised superannuation gains,” she said.

Ms Timms also warned that farmers and small business owners would be “disproportionately impacted” by taxing unrealised gains given they generally held the commercial properties from which they operated in their funds, which could not be easily liquidated to pay tax debts.

“I would challenge whether the bill is in indeed consistent with the government’s objective for superannuation, that being to deliver retirement incomes in an equitable way,” she said. “This legislation needs the Senate to run a fine tooth comb over it.”

Shadow treasurer Angus Taylor said that taxing unrealised gains was “not right for the times” given the strain currently faced by many small businesses and households with SMSFs.

Edge of the wedge

He also warned that the tax will include significantly more Australians than the 80,000 predicted to be hit in its first year as it is not indexed, accusing Labor of using the public’s retirement savings “as a honey pot to be raided”.

Just 0.5 per cent of people with super funds have balances over $3 million, but earlier modelling suggests the 30 per cent tax rate could apply to 10 per cent of super savers within 30 years, without indexation.

“The idea that this policy change will only affect older Australians and the super-wealthy is deliberately deceptive,” Mr Taylor said.

“For a 20-year-old Australian on average earnings, they will be caught by this tax in the future and that will be pain down the track and superannuation is all about money down the track.”

Chartered Accountants ANZ superannuation leader Tony Negline said that it was “disappointing” that the government was not indexing the threshold despite it being one of “a laundry list of issues” raised in the proposal’s original consultation.

Super fund customers with these high balances will be able to pay the extra tax from their account balances even if they do not meet other conditions for accessing their superannuation such as retirement, or from other savings.

The draft legislation also confirmed that they will be able to carry forward losses to offset any major gains in future years. Mr Negline said this was “an important feature” as it meant that they could be extended periods of asset price fluctuation where the tax was not payable.

“But our initial modelling showed that the tax can be quite hard to plan for and can be quite lumpy, so it’ll be a difficult tax to manage in practice,” he added.

Federal judges exempt

The legislation also confirmed that judges will be spared from the tax because the Constitution does not allow the government to change the remuneration of any judges in Commonwealth courts while they are still on the bench. This means that any appointed before July 1, 2025, when the new tax kicks in, are exempt.

Historic rules designed to protect defined benefit schemes also exclude customers of some state public service schemes and judges from paying any additional tax from those products, though the legislation still said they would be included in calculating balances over $3 million.

Mr Taylor suggested this compromised the equity of the proposed tax: “Australians will pay different rates of tax on their super depending on what job they have – even if their income is equal.”