A note from our Managing Partner
By now, no doubt you will likely have read a number of articles in relation to the Government’s proposed changes to Superannuation. Our office will provide detailed analysis of the proposals in due course.
In the meantime, I would like to share with you my views and areas of concern in relation to these proposed changes. We strongly believe that these changes will have a negative impact on the ability for all Australian’s to save for retirement and ultimately achieve financial security in their later years.
Dr Jim Chalmers has stated that the changes impact about 80,000 Australians. I verily believe this not to be accurate. One major newspaper estimates that 500,000 Australians will be impacted. Yet, even if that is the case many tens of thousands of Australians will add to this merely due to the Treasurer’s decision not to allow for indexation of the $3m cap.
Both the Treasurer’s & Government’s approach is divisive by creating a void between the so called “haves” and “have nots”. Australians to date have, by and large contributed to their Superannuation in accordance with the prevailing Rules & Regulations. Yes, some have been able to contribute higher sums and now, despite complying with the law, they will be penalised. It is little wonder Australians are concerned with the ongoing tinkering by both sides of Parliament in relation to Superannuation. It only serves to reduce confidence across all participants in the economy.
The proposed approach by the Government represents an Australian first which will have far reaching impact on many Australians. The proposed changes include taxing unrealised gains at a rate of 15%. This will apply regardless of whether you have sold the asset or investment where it has increased in value over a twelve month period. You will be taxed on this unrealised increase.
It is foreseeable that many Superannuation Fund Members subject to this tax will not have the cashflow to meet the income tax without disposing all or part of an asset. For instance, let’s assume a farm is owned by a Superannuation Fund. Any increase in value will be taxable. Does the farmer need to sell some land to pay this tax? What about if the farm falls dramatically in value due to a drought, fire or flood. The unfortunate Farmer being a Member of his Superannuation Fund faces tax one year and incurs a capital loss the next yet there is no refund of income tax to the Farmer. Whilst I am not an advocate for these proposed changes, surely this is an unintended consequence. Only realised gains should be subject to this new tax.
Furthermore, it is a simple fact that ultimately a Members Benefits will be paid out to the Members or their Estate and in most instances, there will be tax payable by the Fund or the recipients when such benefits are paid out. In other words, Funds accumulated will be taxed and as such the Governments basis for taxing the “haves” is somewhat flawed. Let’s be clear this is a new and additional tax, not merely a timing difference. Even on the rare occasions where assets are removed and paid out in a tax free manner to the Member or other recipients such assets and investments will be eventually taxed in some form or other.
So, is there a better way? It seems to me that the current tax system in Australia needs a major overhaul that goes beyond just Superannuation policy changes. We need to start a conversation about genuine tax reform in Australia. There are several areas that need to be addressed.
In our professional opinion, the introduction of a simplified tax system would be the most beneficial for our country. For example, a flat rate of 20% tax would be a significant step forward in simplifying the tax system and making it more equitable for all Australians. Arguably, this is unfair on Australians earning a lower income. Yet, by our reckoning the Government’s tax proceeds would be more than what it currently generates. In turn, this surplus can be used to provide genuine support to the many Australians in need. We would like to see this option, amongst others be modelled.
Possibly our government should also look at broadening the GST system or increasing the rates. This is indicative of a true user pay system based on consumption. This would ensure that everyone, including multi-nationals, pays their fair share of tax in Australia.
In relation to Multi-Nationals extra effort should be considered to track their activities in relation to tax minimisation and avoidance. Loopholes that favour multi-nationals in the tax system to avoid paying their fair share of tax are costing Australians billions of dollars. It is vital that the government takes action to ensure that multi-Nationals are paying their fair share of tax in Australia.
We urge you to join us in starting a conversation about genuine tax reform and its impact on your financial affairs. Rose Partners will continue to monitor the situation closely and keep you updated on any changes that may affect your future planning. Please reach out to us if you have any concerns or questions regarding your Superannuation or Tax planning affairs.
Thank you for your continued trust and support in Rose Partners.