Treasurer Jim Chalmers

The association formed by the merger of the FPA and the AFA has thrown its support behind Treasury’s marginal super tax but has expressed some reservations, while the SMSF Association has lambasted the proposal.

At the end of February, the government announced a 30 per cent marginal tax rate for super fund account balances over $3 million. The move came amid proposed consultation on the objective of super, which Labor sought to enshrine in legislation as it being used as a vehicle for a dignified retirement.

In a media release on Friday, the FAAA highlighted four key areas of concern: the complexity of the system; the lack of indexing the $3 million threshold; the tax rate; and taxation of unrealised gains.

The $3 million threshold has been a key point of contention which was flagged by the Financial Services Council early in the debate.

The FAAA took issue with the taxing of unrealised gains, which it said would result in Australians being required to keep money in a higher-tax environment than might otherwise be optimal, as well as losing out on the benefits of deferred consumption encouraged by the super system.

It added the 30 per cent tax rate will also be materially higher due to the taxing of unrealised gains, as well as the lack of access to the one third CGT discount for super funds and franking credits. The FAAA recommended the higher marginal rate should be lower than 30 per cent.

Sarah Abood

FAAA chief executive Sarah Abood said the association is open to the principle that high super balances shouldn’t have unlimited tax concessions but still are concerned about unintended consequences with the structure of the current proposal.

“Priority should be given to identifying solutions to these issues, in order to improve the short and long-term certainty for consumers regarding proposed changes to the superannuation tax concessions,” she said.

A little more heated

While the FAAA has approached the reforms with pragmatism, the SMSF Association was much more critical, saying the proposed model discriminates against SMSFs.

The association asserts that funds should be given the option of reporting actual earnings and where a fund can’t or choose not to report actual earnings, a default notional earning rate should apply.

Unlike the FAAA’s suggestion the new system would be too complex, SMSF Association CEO Peter Burgess said the proposed model is too simple and lacks equitability.

Peter Burgess

“We caution against setting what is a dangerous and concerning precedent,” Burgess said.

“Positioning in this manner is counter to vertical and horizontal equity taxation principles. When we consider the various distortions that arise and exceptions that will need to be addressed, the outcome is far from simple or equitable.”