Letter to the Editor: Does the Treasurer own a calculator?

DEAR News Of The Area,

LABOR’S proposal to introduce an unrealized capital gains tax on superannuation funds has created quite a bit of attention since Chalmer’s Federal Budget back on 25 March.

I don’t believe Jim Chalmers owns a financial calculator or has thought through the effect of his tax.

Recently the Government estimated that a young person entering the work force will accumulate a superannuation balance of $3,000,000 over their working life.

That estimate is seriously at risk if the tax on unrealised capital gains successfully passes through both houses of parliament.

Last week I presented my tax cost calculations to a small group of accountants.

I workshopped a few scenarios, all of which concluded that a tax on unrealised capital gains would have a significant negative effect on member balances.

Superannuation funds already pay a considerable amount of tax in the way of contribution tax at a rate of 15 percent and a tax on realised gains during the year.

Assuming that a person entering the work force now works for 45 years, my conservative calculations reveal that the government’s estimated member balance of $3,000,000 at retirement would drop to $2,523,050.

The unrealised capital gains tax would cost the member $476,950.

Over the same period, contribution tax paid at the current rate of 15 percent is estimated to be around $112,005.

Members have been paying contribution tax for years now.

However, the total of both taxes would be approximately $588,955.

Many small business owners have had their self-managed superannuation fund purchase a business premises for them to operate from.

A significant proportion of these SMSF have no other assets other than a cash account which is used to collect rent and pay property expenses and operating costs.

A tax on the unrealised capital gains could lead to the fund not having sufficient cash reserves to pay the additional tax.

The members would be faced with only two scenarios; make non-concessional contributions to the fund (possibly an unaffordable option), or sell the property.

There would be thousands of SMSFs that would be affected by this incredibly ill-contrived tax.

Superannuation has become less and less concessional over the years and becoming a less attractive means of savings.

The loss of tax benefits on lifetime retirement savings means members and their employers will be under pressure to make further contributions to help offset rising tax costs.

In the future, the only real benefit superannuation offers will be that it is a compulsory saving program funded by employers as a part of a total wage package and enforced through legislation.

Regards,
Rodney FOX,
Public accountant.