Division 296: How the new super tax works (including calculator)

Responses

1. 

   Des SOARES

   11 October 2023

   How will this change affect super funds that own property? Does this mean property will need to be valued each year rather than every 2-3 years at present?

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   1. 

      Kate Crawford

      17 October 2023

      Hi Des, There is no change to valuation practices specifically required by the new tax.
      However, as many SMSFs value property every three years their trustees will need to consider if more frequent valuation would be desirable – perhaps to avoid lumpy tax liabilities. APRA regulated funds (non SMSFs) are required to comply with the Prudential Standard for Investment Governance under which APRA expects funds to revalue assets on at least a quarterly basis.

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2. 

   mac1@possumology.com

   13 May 2023

   For the moment, disregarding arguments about the fairness or otherwise of increasing the tax for those fortunate/diligent enough to have built a super balance of $5M+ or $3M+, the one thing that nobody seems to be commenting on is the actual mechanism for implementing this – which is not only unfair but, it seems to me, could have profound and unanticipated effects on ASX trading markets at EOFY.

   The government commentary presents this as simply increasing the tax rate from 15% to 30% for the proportion of your super balance over $3M BUT THIS IS NOT WHAT IS ACTUALLY PROPOSED.

   Within the super fund the 15% tax rate applies to the fund’s taxable income (assessable income less ECPI) now, if we took the government top level overview at face value, someone with a super balance of say $6M (ie 50% of their balance is above $3M) might expect 50% of their fund’s taxable income to be taxed at 15% and the other 50% to be taxed at 30%.

   HOWEVER the government, recognising that this would be a nightmare to actually administer if they required the actual Funds to apply this system, has left the actual super tax system unchanged and decided to levy this as an additional tax at the personal level. The real problem is that, to come up with a simple method of calculating the personal fund income to tax, they have decided to tax Fund EARNINGS – which they have defined as the increase in a person’s super BALANCE.

   Yes, this means that you will get taxed not only on capital gains on shares sold but also on UNREALISED capital gains. Given that the annual performance of the ASX can be much greater or less than the average return this will result in a very lumpy tax impost dependant on the 30 June closing prices at the beginning and end of the FY.

   Anyone who invests in shares with low liquidity with will be familiar with the fact that the closing price of these shares can be moved significantly by even small orders at the end of the day. As a long term investor in such a company you regard this as insignificant “noise” overlying the long term performance but, under this new scheme, a member whose fund has a significant holding in such an illiquid company could face a large variation in personal tax if someone buys/sells a quite small position at close of play on 30 June.

   Since often the reason for the low liquidity is retained ownership by the founders – they could have a real problem if their holdings are held in their super and the EOFY closing price changes significantly.

   I could go on and on about the unforseen problems I can see here – but I suspect it is worth an article of it’s own.

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