Less than 1% of wealthy families will struggle to pay super tax: study

If in one year, market goes up and there is unrealized capital gain which is taxed. What will happen if in the next year, market is down and there is unrealized capital loss? Would the previously taxed capital gain be refunded?

It does not have to be a fair tax because according to the govt it will only affect about "80,000" people and the government is interested in taxing "earnings" that will include realized and unrealized gains - but does not want a share of any realized and unrealized losses.

Another example of this two faced approach is CGT which taxes assets that usually appreciate over time such as art or collectables but exempts assets such as motor cars that usually depreciate (significantly) over time.

ANU’s Centre for Social Policy Research seem to have been selective in the stats used to drive their narrative. If we accept that household wealth distribution in Australian is skewed, then using the arithmetic mean to make a point like the average wealth of a household with at least one superannuation balance exceeding $3 million is more than $19 million is a bit disingenuous . Did the researchers bother looking at median household wealth as an indicator or did that not support the rather sensationalist (and misleading) headline?

Got me thinking - do you have any to add? - and these are just famous wealthy people

Lewis Hamilton (Formula 1 driver) – Monaco resident.

Phil Collins (Musician) – Lived in Switzerland.

Sir Sean Connery (Actor) – Lived in Spain and the Bahamas.

Cliff Richard (Singer) – Barbados and Portugal.

Rod Stewart (Singer) – Lived in the US for many years.

Sir Michael Caine (Actor) – Lived in the US and has mentioned tax being a factor.

Sir Philip Green (Topshop/Arcadia Group)

Sir Richard Branson (Virgin Group) – Lives in the British Virgin Islands.

The Barclay Brothers (Owners of the Ritz, Telegraph, etc.) – Residents of the Channel Islands and Monaco.

James Dyson (Dyson vacuum cleaners) – Moved his company’s headquarters to Singapore and spent significant time overseas.

Bernie Ecclestone (Former F1 boss) – Lived in Switzerland for many years.

Hans Rausing (Tetra Pak heir) – Swedish by birth, but lived in the UK and abroad with significant tax structuring.

Sir Stelios Haji-Ioannou (EasyJet founder) – Based in Monaco.

Sir David Barclay – Formerly based in Brecqhou (Channel Islands).

David Bowie – Moved to the US; was tax resident there.

Mick Jagger & The Rolling Stones – Spent long periods as tax exiles in the 1970s, notably in the south of France.

Ringo Starr – Lived in Monaco.

Monaco, Switzerland, Dubai, the Bahamas, USA and the Channel Islands are popular destinations due to favorable tax regimes.

Some individuals structure their affairs via trusts, offshore companies, or by having family members (like spouses) reside in low-tax jurisdictions.

https://nomadcapitalist.com/lp/leave-australia-lower-taxes-move-abroad/

Possible in Australia for SAPTO couple with $whatever in super disbursement accounts + $A1M in personal accounts to pay $0 income tax + GST + Property Tax.

Taxing unrealised gains is completely contrary to the structure our tax system. 3 million or 5 million is a different policy issue. Taxing unrealised gains could be the tip of the iceberg.
The Government just avoid the topic by saying it only applies to a small number of people. That’s not the point!

"The Government just avoid the topic by saying it only applies to a small number of people.That’s not the point"

It's hard to believe that so many people cannot grasp the simple concept that a bad law is still bad even if it only affects one person let alone many tens of thousands.

The Govt is attempting to portray taxing unrealized gain as a "modest change" that will only affect 0.5% of the population. Nothing could be further from the truth- because not only is it absolutely unprecedented, it is potentially the precedent they want to create before widening the scope to other wealth.

The issue should have been canvassed more robustly during the recent election campaign. The fact that Dutton completely dropped the ball not only on this but other issues explains why the liberal party may remain in limbo for the foreseeable future.

What about the Murdochs?

So - just because somebody won't "struggle" to pay the tax, the government should force them to pay more?
What a great concept to encourage even more wealthy people, high income earners and potential high income earners to become non - resident for tax purposes. What a great way to drain Australia's wealth, talent pool and remove people that spend the most and so pay more GST and more income tax and stamp duty etc, than the average OZ. There are other countries that will gladly have them as tax residents, like the USA. Didn't the UK do this? How many wealthy, famous, high income earning Brits can you think of that have become US citizens?
This does not sound like good logic to me. I have no problem in removing tax concessions for those that don't need them and capping super and increasing the super tax rate on "realised gains" on a progressive scale like income tax - but taxing people just because they won't struggle to pay it - seems like a big mistake to me.

….still a mouth piece for our socialist govt.

The original limit that was being discussed was $5 million per member, not $3 Million. Plus it never included failure to index the amount. Unbridled revenue grabs like this will simply translate into bigger mega-mansions & more investment into the expensive real estate market, or force more capital offshore. Epic fail. This nation is well on the way to following the UK & Norwegian "unrealised CGT / Estate Tax" disaster, with major investors fleeing the country. It never works and history proves it.

Academic. Wealthy people in retirement, or beyond preservation age, which will be the majority impacted didn't get there by being stupid. They will respond - behavioural change is not a Treasury strength.

At the end of the day this is not a "tax" it is a "levy on wealth" by the ideological Left and they will not be turned.

Over recent months I've taught myself to ignore the weekly super tax article. This week there were 2 of them.

By now, I think we all know where the majority of Firstlinks readers stand, and it's not something I'm proud of. Instead of offering solutions, these people just whinge about "socialism", "greedy pollies", "fat cat bureaucrats" and appear comfortable with an increasing amount of revenue coming from income tax. This disproportionately affects younger people who are raising families and trying to buy a home. This revenue is paying for basic services, healthcare, roads, schools and making our communities safe.

I probably wont read this comment or responses to it. You've alienated another female reader.

Of course, it's off limits to discuss out-of-control Govt spending, it appears. Quite a bit of this "revenue" is being spent on a whole host of items/individuals who contribute absolutely nothing to improving roads, healthcare or schools. Let's not use these important items as a cover-up for failure to engage in good financial management.

Nor does it appear that its worth considering the disproportionate burden of tax being paid by the top 10% already and the negative overall tax contribution from the bottom 80% who hold their hands out for additional subsidies at election.

Whilst the US take self incentivisation too far to allow for a cohesive society their exceptionalism is a direct consequence.

There needs to be a more holistic approach to taxing “wealthy” individuals who may use super as a tax effective means to transfer wealth to the next generation. Little has been said about “wealthy” individuals with modest superannuation balances but living in $3m+ properties and drawing full pensions. Surely this needs to be part of the discussion.
Perhaps a threshold (indexed) on property value and then reduction in pension for those over supported by a reverse mortgage so they are not required to sell the home or lose income.
Without a holistic tax review, many facing the Div 296 tax will withdraw super funds and update the family residence or seek out other forms of tax effective investment to side step the tax.
The Govt is unlikely to go there as it would be massively unpopular with voters but should be part of the discussion

How about a major wind back of overly generous politicians super. I doubt whether the likes of Albo and Wayne Swan et al need the tax payer to fund pensions in the order of $300-400 k pa indexed for life. Seems overly generous!

John Abernethy belled the cat on the relatively hidden fact that presently the tax payer is paying out $20 B pa for retired public service pensions, and growing, and that the Future Fund is going to be woefully inadequate at covering these and future obligations. What's good for the goose......

Ah but that would require real reform, guts and taking on the unions etc

Thank you James for acknowledging my article.

Interesting to note that this week the Australian newspaper disclosed that the top 16 Commonwealth Public servants were each earning about $1 million in salaries - multiples of that paid to the PM and Ministers.

The article noted that some of these public servants joined the Commonwealth service prior to 2005.

Indeed, some of these people may:

1. Be recipients of extraordinary Defined Benefit Pensions - possibly larger than $600k pa ( pre tax);

and

2. Have participated in the advice to Government for an unrealised capital gains tax on super balances.

The conflicts of this are obvious when it is noted that unrealised capital gains tax on Defined Benefit Pensions is extremely complex to construct and then levy.

Therefore, we now have a great opportunity to open up the discussion with a higher level of transparency covering all aspects of the proposed tax - particularly as to how it may apply to the various cohorts of defined benefits.

Public company executives are required to make extensive disclosures on their remuneration. Indeed, shareholders vote on these reports annually.

Clearly, highly paid Public Servants have remuneration packages that include retirement benefits - some of these benefits will be significant whilst some not so.

Taxpayers are entitled to know what the total remuneration packages are for very senior public servants ( i.e. senior executives of the Commonwealth)

Taxpayers are therefore entitled to know what the retirement benefits are for each. Also, as to how taxation will apply to these benefits.

If a senior public servant is entitled to a significant indexed pension then a mitigating factor may be that it attracts marginal rates of income taxation on receipt.

It is therefore an appropriate time for the Treasurer to explain as to how each of the 16 highest paid Public Servants will be affected by s296 tax and as to how they will be taxed generally on their benefits and the extent to which they have contributed to those benefits.

Transparency regarding the full extent of the application of s296 continues to be sadly lacking.

James#, FYI, politicians and public servants' superannuation from an untaxed source is taxed at normal marginal tax rates less an offset capped at $12 K. So your theoretical superannuated "fat cat" or pollie receiving $400K pa would pay $142K tax, after the offset is applied, about 36% of their income if that is their only income source. If you include a few consultancies and directorships, this would increase to 45% plus 2% Medicare levy. Let's stick to the facts in what has become a highly emotional debate, for some.

@Ron T: "So your theoretical superannuated "fat cat" or pollie receiving $400K pa would pay $142K tax, after the offset is applied, about 36% of their income if that is their only income source."
So, $400 k pa - $142 k tax = $258 k pa is not overly generous when cumulatively costing the tax payer circa $20B pa, and growing at an unsustainable rate that the Future Fund will never be able to cover?

$258 K pa (/ by 5%) provides a theoretical capital base of $5,160,000! How much of this did the member tip in personally. Is this something that tax payers can continue to afford? What's good for the goose.......!

“many facing the Div 296 tax will withdraw super funds and update the family residence or seek out other forms of tax effective investment to side step the tax”

If over a 40 + year working career you have lost at least one HALF of your income/wealth to income taxes, sales taxes, GST, stamp duties, LCT, budget repair levies, gun levies, rates and property taxes, CGT, etc etc. it should not be a surprise that you may want to take steps to protect the other HALF from the clutches of revenue hungry governments that don't always spend it that well.

GeorgeB, I hope you haven't used roads, hospitals or schools, relied on ambulance, police or firies for assistance, enjoyed the societal benefits of government services or generally lived in Australia. If you have, then you've benefited from the half of your wealth that you have supposedly lost. 

Well said . Been there done that apparently
We have done too well of a job .so now they say it is tax avoidance .say it long enough
And pepole will believe it

"I hope you haven't used roads, hospitals or schools, relied on ambulance, police or firies for assistance, enjoyed the societal benefits of government services or generally lived in Australia. If you have, then you've benefited from the half of your wealth that you have supposedly lost."

...but nowhere near the 20x my share that the more than half of my taxes paid for.. ..

Well said George B.

"Nirvana in the socialist world (where Australia is heading) is that regardless of how much you contribute or save, everyone gets the same!":

No need, or point, to struggle to improve. No progress.

Exactly. Aspiration will go out the window. Why become literally a modern dayr "slave" for the greater good which has its end result having Australua as the "Nirvana in the socialist world". That is until there is a wake up call and the powers that be realise that the "Nirvana" is quickly becoming a very poor country.

Make super uncompetitive with, or more hassliferous than, Palazzos and Tax Havens and watch it wither.
'Show me the dis-incentive, I'll show you the outcome.'

Better to have a legal Tax Haven domicile in Australia, called 'Super', which invests locally creating business, employment, taxes, repatriated profits.

Alternatively, abolish:
. Super,
. Age Pension Means Tests,
. Inflation 'Stealth Tax',
. Uncompetetive tax rates.

I would believe if the government changed 296 to:

1. Drop the threshold to $2m
2. Index it in line with the current transfer balance cap (TBC) from 1st July of $2m
3. Make the tax on fund income (realised capital gains) on the proportion over the TBC.

Almost everyone would say fine, we could all move on.

The ultimate stupidity of 296 is large balances will potentially be removed and the government will not collect the 15-17% of CAPITAL of the taxable component when these large account members die. The benefit to the Commonwealth will therefore be vastly overstated to their likely realisation of tax revenue. Time to go back to the expenditure side of the budget Jimbo.

“if the government changed 296 to: Drop the threshold to $2m”
Making the div 296 tax threshold the same as the TBC threshold would effectively mean that funds in retirement are taxed either at 0% below the threshold or 30% above, thus eliminating the 15% threshold and making the system less progressive.

“The ultimate stupidity of 296 is large balances will potentially be removed and the government will not collect the 15-17% of CAPITAL of the taxable component when these large account members die.”

This comment ignores the reality that unusually large super balances were accumulated via large non-concessional or after tax contributions which are not subject to the death tax. In fact one strategy to reduce this tax in retirement is to re-contribute pension funds as non-concessional to reduce the taxable proportion.

"The tax on unrealised capital gains ... is messy, complex, and unnecessary."

I'm sorry, but anyone with this view doesn't understand Div 296 or the complexities of alternative ways of increasing tax on large balances. Div 296 tax can be calculated by the ATO - very simply - from data it already receives, no matter how many accounts an individual has. But to do that, the earnings base has to include unrealised gains. There is not enough data available to the ATO to exclude URG from an individual's earnings calculation.

Anyone can have any number of super accounts. And no-one has mounted an argument as to why this should not be permitted (as opposed to why having only one account is often in a person's best interests). And your super fund trustee doesn't know what other accounts you hold or what your TSB is.

So, unless that changes, to get the URG data for every individual with a TSB >$3m, the ATO would have to get URG data for EVERY account in every super fund. That's a huge extra cost, just to raise some tax on a small percentage of individuals (or to push their excess out of the super system).

The Div 296 "tax on unrealised gains" is not "messy", nor is it "complex". And, if an additional tax is to be levied without a major reporting impost on all super funds, it doesn't seem to be "unnecessary".

To me, the obvious alternative would have been to require a proportion (say, 20%) of the excess over $3m at 30 June to be removed in the following financial year. Not the whole of the excess, because the balance will have moved (up or down) by the time the ATO has collated and analysed its data. (Therefore, a hard cap is simply not practical.)

This withdrawal requirement would have its own problems, including rules for any limits to how much can be removed and what would constitute compliance with the (say) 20% requirement. But the bigger problem for those who hate Div 296 would be the need to sell off part of the farm - and pay tax on the realised gain.

"There is not enough data available to the ATO to exclude URG from an individual's earnings calculation.":

Not enough data reported to ATO. Currently.

Just need to break reported Member 'Allocated earnings' into:
. Member Real allocated earnings, and,
. Member Unrealised (imaginary) earnings.
and add to tax return / report to ATO.

A trice. Data is currently available at Member level. Not reported because ATO did not ask.

Exactly - Treasury in their great wisdom (plus the industry funds all saying it is too hard to do) led us to the great solution of total balances !

A reminder, that a couple with $1.5 m each, could find a surviving spouse with $3m in superannuation when a partner dies. I suspect people with over $3m will quickly escalate.

I used to encourage my adult children (in their late thirties) to contribute extra into Super. But not any more! There are better more flexible vehicles to make investments as this won't be the last change from this Govt.

it doesn't matter if people can afford to pay it. Taxing unrealised gains is fundamentally wrong and just daylight robbery. It's the start of a slippery slope.

No one needs more than 3 million in superannuation to have a dignified retirement. It’s daylight robbery to allow this accumulation of wealth to continue.

It’s a clunky tax on increasingly excessive wealth, closing an obvious inheritance loophole exploited, for the most part, by very wealthy people.

Hopefully it is the start of changes to make our tax system fairer.

It’s perfectly fair to close tax loopholes, to ensure superannuation functions as intended.

I've said the same since murmurings of this new tax started a few years back.

$3M is more than fair for a Superannuation Account, if you have more or want more for retirement it doesn't need to be in Superannuation.

They should just Cap it at $3M (indexed like the TBC is)

We need to be careful not to conflate the morality of taxing unrealized gains which may be volatile and have little or no bearing on actual gains, with the debate about what should be a reasonable cap on super (Paul Keating sometimes called the father of our super system thinks it should be about $5m). In any event it should be an amount that will (conservatively) generate in retirement a fair margin over the aged pension, otherwise what is the incentive to sacrifice current for future consumption (assuming that aged pensions are not universally abolished).

" In any event it should be an amount that will (conservatively) generate in retirement a fair margin over the aged pension, otherwise what is the incentive to sacrifice current for future consumption (assuming that aged pensions are not universally abolished)."

Nirvana in the socialist world (where Australia is heading) is that regardless of how much you contribute or save, everyone gets the same!

If no-one needs more than $3m in super. Put a cap on super balances at $3m(indexed) and pay out the balance regardless of age.

Why doesn't the government do this? Probably because they would prefer the money in the highly regulated super environment where they can tax it

When the tax was first mooted was years ago, so now $3m is equivalent to $2.8m back then.

"No one needs more than 3 million in superannuation to have a dignified retirement"

$3m won't be worth nearly as much midway through most peoples retirement-also tell that to the fat cat bureaucrats and politicians who retire at 60% or so of their mega $ salaries wholly at taxpayers expense