A proposed law affecting Australia’s $3.9 trillion superannuation industry that could force some primary producers to sell their farms is being considered by the country’s Senate.
The Superannuation (Better Targeted superannuation Concessions) Imposition Bill 2023 aims to increase taxes for Australians with more than $3 million in superannuation (super) from 15% to 30% once introduced on 1 July 2025.
The Bill has been criticised by bodies representing people with larger super (pension) balances, including those with self-managed super funds (SMSFs), because it will tax unrealised capital gains, which is rare among developed countries.
Introduced with the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, the Bill imposes an additional 15% tax on super earnings corresponding to the percentage of a balance above $3 million.
Financial Services Minister Stephen Jones described it as a “modest, responsible change” which maintained concessional taxation in superannuation and did not limit on the amount that could be held in super beyond contribution caps.
“It ensures that concessions are better targeted at amounts that deliver income for a dignified retirement,” Jones told the Parliament in his second reading speech.
Phil Broderick, Director and Chair of the Institute of Financial Professionals Australia’s Superannuation Policy and Technical Committee, said farmers with rural properties in SMSFs would have to sell assets inside or outside super if they did not have the cash to pay their tax bills.
“Either they've got to sell that farm in the super fund and then withdraw that amount or, alternatively, they've got to sell something outside of super to pay that amount,” Broderick told a Senate Economics Legislation Committee inquiry in April.
The Bill has been before the House of Representatives and in October was introduced to the Senate, where the ruling Labor Party has to negotiate with the Greens, One Nation, cross-benchers and minority parties to secure the passage of legislation because it does not have a majority in the Upper House.
SMSF Association CEO Peter Burgess said SMSFs were popular with primary producers and small business operators as vehicles for owning their properties.
“If you're basing a tax on unrealised gains, you could create significant liquidity problems for these types of funds because they simply won't have the cash to pay that tax,” Burgess told the inquiry.
Some critics have disputed the Government’s statement that the proposed legislative change would affect just 80,000, or about 0.5% of, Australians with a super account in the 2025-26 income year.
The Financial Services Council (FSC) estimated it could impact 500,000 people because it had not been indexed, reducing the effective retirement savings threshold for someone in their 20s to $1 million.
“By choosing not to index it, you're actually very much targeting Middle Australia of future generations' retirees, and we don't think that is fair and equitable,” FSC CEO Blake Briggs told the inquiry.
The Association of Superannuation Funds of Australia supports the planned law, which it has estimated will raise more than $3.5 billion a year when combined with a related super tax change, but has called for $750 million to be used to help low income earners.
Also backing the Bill is the Super Members Council (SMC) which said it was a good step towards ensuring tax concessions in super were fair and well-targeted.
“Some tax caps in super are indexed, others are not – that’s a matter for Government. But Government should periodically review caps and their relationships to each other to ensure their policy objectives are being met,” SMC General Manager Strategy Matt Linden said in a statement.
Some financial advisers have said clients may still be better off leaving their funds in super and paying the extra tax rather than selling assets because the advantages of holding funds in a low tax environment may be greater than the disadvantages.
The tax rate on super in the accumulation phase while people are working is 15%, below marginal tax rates ranging from 19% to 45%, and zero in the pension phase once they have retired.
Although Australia’s 32 year old universal retirement savings system is admired by many countries, it has been criticised for the disproportionate tax benefits it provides wealthy people who can hold assets in superannuation.