A proposal to double taxes on superannuation funds with hefty balances will snatch about $80,000 from 50,000 Australians with self-managed super funds (SMSFs) and leave some struggling to meet their new payments.
A new report from the International Centre for Financial Services found Treasurer Jim Chalmers’ proposal to reduce tax concessions from 15 per cent to 30 per cent on super funds above $3m would hit up to 50,000 people with SMSFs.
The researchers analysed financial data from more than 720,000 individual SMSF members across 2021-22 to assess how the new taxes would land.
“We estimate that somewhere between 3 per cent and 11 per cent of affected SMSF members will find it difficult to cover the new tax expense from liquid assets within their superannuation,” the report, commissioned by the SMSF Association, states.
“In 2021, we estimate a mean added liability of almost $89,000 per member.”
In 2022, researchers found the liability fell to about $83,000 per member.
Mr Chalmers has spruiked the change as a responsible measure that would help repair the budget and hit less than 0.5 per cent of Australians, or some 80,000 people.
“Labor built the superannuation system. We will always protect it and make it stronger because we want working people to have dignity and security in retirement,” Mr Chalmers said in February.
“More than 99.5 per cent of Australians will continue to receive the same generous tax breaks that help them save more for retirement through superannuation.
“The 0.5 per cent of individuals with superannuation accounts over $3m will receive less generous tax breaks for balances that are beyond what is necessary to fund a comfortable retirement.”
Earnings from superannuation in the accumulation phase are currently taxed at a concessional rate of up to 15 per cent.
The 15 per cent rate will remain in place for all accounts below $3m, but will rise to 30 per cent from July 1, 2025 for balances above $3m.
The government will include unrealised capital gains to measure earnings, which ICFS researchers warned could reduce tax receipts over time.
“Excluding unrealised capital gains from the current period member earnings calculation leaves a larger asset base within the superannuation system,” the report states.
“With returns compounding over time, a larger current period asset base, in turn, grows the overall tax base for future periods.
“This is further reinforced by the fact that some members will also be able to avoid most of the transaction costs (i.e., losses) associated with being compelled to sell illiquid assets solely to meet any new tax obligation.”
SMSF Association CEO Peter Burgess also said the inclusion of unrealised capital gains meant year-on-year tax bills would fluctuate with capital markets, making the new tax an unpredictable liability.
“Asset rich, income poor SMSF members will find it difficult to cover their additional tax liability and this problem is likely to worsen over time as unrealised capital gains accrue while tax payments from previous years diminish liquidity,” he said.
The government expects the new changes to bring in an extra $2bn in the first year of implementation.
The proposal is still in the consultation phase and has not yet been legislated.