Treasurer Jim Chalmers has declared Labor has a ‘mandate’ for a sweeping plan to tax superannuation before assets are sold – despite a warning it could amount to a new form of death duties.
Labor needs the Greens’ support in the Senate to pass its Better Targeted Superannuation Concessions bill that would see a new 15 per cent tax levied on unrealised gains on balances above $3million.
The Opposition and superannuation groups are opposed to the idea of taxing assets in a self-managed super fund before they are sold, based on the paper or notional value of holdings.
Labor’s policy would mark a radical departure from the usual practice of applying the capital gains tax once something has been sold.
Now a leading superannuation expert – Professor Robert Breunig, the director of the n National University’s Tax and Transfer Policy Institute – has argued the government should consider a change to its proposal.
Prof Breunig said the government should look into allowing the unrealised gains tax to be paid years later, when someone eventually sells an asset.
He likened it to the standard practice of paying undue council rates after a house had been sold.
‘If you’re going to tax unrealised gains, I think you should be giving people the opportunity to defer paying the tax until they dispose of the property,’ he said.
‘That would be my preferred policy.’
But Chalmers on Wednesday rebuffed a suggestion Labor would revisit the concept of taxing unrealised gains, even though someone inheriting a self-managed super fund could be left with a new tax liability.
‘First of all, we’re not changing the policies we took to the election,’ he told the National Press Club.
‘We’ve got a mandate for that change… What we’re looking for here is an opportunity to build on the progress that we’ve made, including in the economy as you point out.
‘We’re looking for, not opportunities to go back on the things that we have got a mandate for, we’re looking for new ideas.’
‘Inheritance’ tax accusations
Labor’s tax on super balances above $3million could effectively amount to an inheritance tax, along with a new tax on franking credits – or tax refunds for owning shares in a company that has already paid company tax.
Senator James Paterson, the Opposition’s finance spokesman, said the government needed to explain if taxing unrealised gains on super amounted to an inheritance tax by stealth.
‘Labor’s super tax grab has been on the public record for two years,’ he told Daily Mail .
‘The Albanese Government should be able to fully explain the implications of their policy, including for people’s wills.
‘We should not be reliant on independent experts, the media or the Opposition to explain how this policy will work in practice.
‘Jim Chalmers must be upfront about how his unrealised capital gains tax interacts with franking credits and inheritance.’
A self-managed super fund can be passed on to a dependent or left to someone in a will.
Professor Breunig said someone inheriting a self-managed super fund with more than $3million, upon the death of a parent, would effectively be paying a new form of inheritance tax with the 15 per cent tax on unrealised gains.
‘Yes, sure it is, but that’s true of a lot of our taxes – that’s true with council rates,’ he told Daily Mail .
‘It would be an inheritance tax if you were somehow paying back taxes on it – you inherit the liability.’
A self-managed super fund, with a balance above $3million, would be subject to an unrealised gains tax if there was a property in the portfolio, under the government’s Division 296 plan.
That would be a departure from existing rules allowing someone to avoid paying the capital gains tax on a property they inherited, outside of a super fund.
Prof Breunig said Treasury would benefit from being able to tax unrealised gains in a super portfolio, catching out those who left property in a self-managed super fund.
‘Currently, we have a subsidy in the system that subsidies people passing out wealth to their children and you’re kind of removing that subsidy,’ he said.
‘That is one of the attractions of the unrealised gains tax.’
Future of the tax
The Greens want the $3million threshold lowered to $2million but indexed for inflation.
Prof Breunig said that would mean applying an unrealised gains tax to accounts typically producing an annual annuity, or guaranteed retirement living income, of $100,000.
‘Two million’s too low – how much money do people need to have a comfortable retirement?’ he said.
‘Now you’re talking about a lifetime income stream that’s more like $100,000, which for a lot of people isn’t that much relative to how much they made in their lifetime.’
n abolished inheritance taxes at a national level in 1979, with all the states getting rid of that tax by 1981.
Labor’s planned tax doesn’t effectively levy a new charge on a superannuation fund balance being transferred to a loved one.
‘That’s why I’m not thinking about it as a death duty,’ Prof Breunig said.