Hmm Pretty sure no one serious has ever proposed taxing unrealised gains?
This is how it starts
“Simplest and best way” to apply the 30 per cent rate on earnings from balances over $3 million, he said. The Treasurer has defended a decision to include unrealised gains in the calculation for
www.accountantsdaily.com.au
The Treasurer has defended a decision to include unrealised gains in the calculation for the higher rate of tax on super balances above $3 million and dismissed a backlash from the accounting industry.
Under the proposals an individual’s total super balance, which includes all notional gains and losses, will trigger the 30 per cent tax rate and that means members impacted by the measure will pay tax on unrealised earnings.
Accountants said this could cause problems for farmers and small business owners who often held one lumpy asset in their SMSF and might have insufficient liquidity to meet a tax liability.
Technical experts have already cited examples of problems with the way the government intends to calculate earnings for the measure.
Smarter SMSF chief executive Aaron Dunn said changes in a member’s total super balance purely from moves in the market value of assets would involve a tax liability to pay.
“[This is] in addition to the subsequent CGT on the disposal of the asset in the future which must be applied proportionately due to the disregarded small fund asset rules,” he said in a recent article.
The proposed measure could therefore impose a significant cash flow burden on many funds.
Heffron managing director Meg Heffron gave an example to illustrate the cash flow issue on a large unrealised gain.
Ms Heffron gave an example of Brad whose earnings were $1 million for the financial year due to the skyrocketing value of a property. Brad had $5.5 million in super.
The proportion of his earnings that will be subject to the extra tax of 15 per cent would be 45.45 per cent.
So in this case: 45.45% x $1m x 15% = $68,000 (approximately).
“What if Brad’s super fund was really only generating enough cash to pay his pension? The property is rented out and earns around $150,000 per annum but with expenses etc, there’s not a huge buffer over the pension payments,” she said.
“Normally that’s not a problem – Brad’s fund only needs enough cash to pay his pension and (worst case) if the property is untenanted for a while or needs major repairs so cash really dries up, he’s allowed to switch off (commute) his pension so that the fund doesn’t need any cash flow for a while.
“However, this special extra tax will apply regardless, and if the fund doesn’t have the cash to pay it, Brad will have to.
“So in fact this extra tax could mean Brad’s retirement income is used to pay tax on growth in the value of his fund’s property.”
Part of the federal government's changes to rules around superannuation involves a new tax on "unrealised gains", and it has farmers especially worried.
www.abc.net.au
It may be hard to feel sorry for someone who has more than $3 million stashed away but farmers say proposed changes to superannuation will seriously affect many hard-working families.
Unlike average Australians on a salary who get employer contributions to their super, farmers have to fund their own retirement and many do it by putting their farm into a self-managed fund.
When they retire they might lease the property out to earn income, sometimes to their children who then inherit the property when their parents die.
Under the federal government's proposed changes, however, farmers with more than $3m in their superannuation fund will have to pay capital gains tax if their property goes up in value.
A 5 per cent increase on a $3m property could result in a tax bill of perhaps $50k.
For some farmers, if they are cash poor, that could mean they may have to sell assets to pay the tax bill, but if the property value goes down the next year, they won't get a refund.
The federal government's plan is to double the tax rate on the nation's largest super accounts from 15 to 30 per cent in 2025, which it says will affect about 80,000 people who have more than $3m in their super fund.
That proposal includes a new tax on "unrealised gains", or the amount that the property increases in value in a financial year.
ASX shares included
Julie Schofield from rural financial services firm Boyce warns it is not just the farm that could be taxed under this proposal.
"It's listed equities as well, any assets that have gone up in value in a superfund environment, but only for people with balances greater than $3m," Ms Schofield said.
