A ‘technical back door’ in Labor’s new tax rules will mean certain super members are facing a higher level of tax, the financial industry is warning.
The nation’s superannuation industry was largely spared from the overhaul to the capital gains tax. But a detail embedded in the complex new rules coming into effect from next year means Australians are facing paying more tax on certain assets inside their super account.
That’s the warning from the Financial Services Council (FSC) which has called out the government over its commitment that superannuation would be largely unaffected by the CGT changes. But a quirk in the legislation has undone that promise.
The Council says its analysis has identified at least $372 billion of super assets potentially exposed to higher rates of tax, “with a conservative estimate of more than $55 million a year in additional tax paid by Australians”.
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The reason relates to new rules restricting how managed investment trusts can offset capital gains and losses.
“The same investment could face different tax outcomes depending on whether it is held directly or through a managed investment trust,” the FSC said, labelling it “a new and unexpected tax” on the retirement of Australians.
Under the existing law, a superannuation fund can apply its capital losses first against capital gains that are not eligible for the CGT discount, which preserves as much of the fund’s one-third CGT discount as possible.
Under the new laws drafted, assets held directly by a super fund can continue to do so, however if the same assets are held in a managed investment scheme like a trust it must apply the new regime’s capital loss ordering rules before passing the remaining gains to the super fund, ultimately increasing the tax paid by impacted members.
Colonial First State Superannuation chief executive Kelly Power said the revelation shows super funds were not left unscathed by the changes and urged the government to make amendments to remove the sneaky tax hit.
“Super members should not be worse off because of how their investments are structured. A targeted adjustment is needed to ensure members receive the same tax outcome whether assets are held directly or through a managed investment vehicle,” she told The Australian, which confirmed that Treasury will enforce the rule.
‘Australians paying more tax through a technical back door’
The exact impact remains unclear, the FSC noted, and it will depend on the mix of gains and losses and a fund’s existing tax position, but the central concern is the unequal treatment, or arbitrary distortion, created by the new rules.
