The Federal Budget did little to quell the dissatisfaction with the earnings calculation proposed by the Government in their original ‘Better targeted superannuation concessions’ Fact Sheet and Consultation Paper.
We have discussed these in details previously, with a comprehensive overview of the announcement, fact sheet and consultation paper in our previous blog posts that discuss the earnings and tax calculations:
- How Labor’s Tax On High Super Balances Intends To Work
- Treasury Release Consultation Paper On $3.0m Threshold Targeted Tax Concessions
Last night’s budget papers for the measures forecasts an increase in revenue from what was previously identified – this can presumably be attributable to the inclusion of defined benefit interests which were initially excluded (in 2027-28, $2.3 billion in receipts collection, up from initial estimate of $2.0 billion). This ultimately means that the Government has not moved on its original position to include unrealised changes in the market value of fund assets within the additional tax calculation attributable to a fund member.
Whilst we could focus on the obvious flaws with the proposal, this blog post turns to other elements that perhaps don’t get the attention they need and should certainly be front of mind when we are presented with draft legislation following the initial consultation.
Similar issue, different outcome?
The existing measure is based on individuals with a total superannuation balance (TSB) that exceeds $3.0 million. As it stands, and rightly so, personal injury and structured settlement contributions are excluded from an individual’s total superannuation balance. So by extension, a member who suffers an injury that results in a compensation payment that is contributed to superannuation won’t be levied additional tax on the earnings associated with those contributions. That is a fair outcome. However, those who receive insurance proceeds having satisfied the total and permanent incapacity requirements are not afforded the same outcome.
The consultation paper did include insurance proceeds as a contribution so in the year of receipt the amount will be subtracted from the current year total superannuation balance but that’s only temporary relief because the following year there is no further exclusion. As a result, a member who is unable to work who elects to draw their insurance as a disability superannuation benefit income stream could end up paying a further 15% tax on earnings. Submissions have been made to highlight this issue and endeavour to treat these payments equally.
Has the industry feedback fallen on deaf ears?
In what was a short period of consultation before the Federal Budget, the SMSF industry did have an opportunity to raise a number of potential issues with the Government’s proposed measures. Unsurprisingly, the most controversial was the unrealised capital gains, which on face value does not appear to have changed.
Therefore, you do wonder to what extent Treasury listened to these issues raised by the sector as part of the consultation process? Only the release of draft legislation will expose the full extent of what they took on board.
We will continue to highlight a number of these issues from this measure as more details come to hand over the coming months.