March 2023

Speaking to SMSF Adviser, IPA general manager, Tony Greco explained that one of the major issues with the proposed methodology behind the tax calculation is it treats income and unrealised capital gains equally.

It also doesn’t apply the CGT discount to unrealised capital gains, he added.

The worst aspect of the proposed calculation, he stated, is that there is no refund if unrealised gains reverse.

The proposed calculation only allows negative earnings to be carried forward and offset against the extra tax in future years’ tax liabilities.

“So you’re paying tax [on the unrealised gain] first but then in future years if the asset value goes the other way, you don’t get to claw that back. You have to wait for the investment value to recover before you get to see the benefit of that pre-payment,” Mr Greco explained.

While there is no detail yet on how the measure will work upon the death of a member, Mr Greco said this could potentially mean that if the member dies before the asset value recovers, the tax paid is essentially lost.

“If a member dies so does the tax paid. This may be a common scenario if asset values rise and never recover before the member dies,” he warned.

Mr Greco noted in some cases asset values can take a long time to recover.

“You could buy a property and then they build a freeway next to it. It might take 10 years before that property value recovers,” he said.

“The prepayment of tax based on an unrealised gain is almost like a casino where the house never loses.

“The government is grabbing its money first but doesn’t have to pay it back if it goes the other way. What better outcome from a government perspective could you wish for.”

BGL managing director Ron Lesh has also criticised the government’s measure this week, labelling it “super theft”.

In a release issued on Tuesday, Mr Lesh said the new tax appears to have been Labor’s intention before the election.

“It is unfair to hard-working Australians who have legally saved for their retirement and have accumulated balances through making contributions and smart investing. And just another example of the Albanese government’s total disregard for the financial well-being of Australians,” said Mr Lesh.

The number of Australians affected by the measure is likely to rise over time, he noted, with the Financial Services Council estimating it could climb to 500,000 over time.

“Limiting politicians, public servants and judge’s [sic] defined benefit pensions to what can be earned with the current $1.7 million balance transfer cap would be a much better way for the government to raise revenue”, added Lesh.

“Since the Albanese Government came into power, we’ve already seen huge increases in interest rates, electricity, gas, food and services. With this new tax, I’m deeply concerned Labor will soon come after Australians with changes to negative gearing, franking credits, capital gains tax, wealth or inheritance taxes, or even taxing the value of the family home,” says Lesh.