Senators discover middle Australia set to be hit hard by super...

Senators discover middle Australia set to be hit hard by super bill
ROBERT GOTTLIEBSEN

The government now needs three crossbencher votes like that of Jacqui Lambie to pass the bill. Picture: NCA NewsWire / Martin Ollman

The infamous superannuation bill which taxes unrealised capital gains for the first time in the Western world was expected to be passed through the House of Representatives last week. But strangely it was postponed.

Speculation about a looming deal in the Senate was naturally widely canvassed. That may be right, especially as last week passing the bill became just a little harder.

Until last week the government and the Greens could muster 37 Senate votes so needed only two Senate crossbenchers to pass a bill. Last week Fatima Payman left ALP ranks and became an independent senator. That means the government now needs three crossbencher votes.

It is highly unlikely that the superannuation legislation has been on Payman’s agenda. It is not seen as a Muslim issue. But like other parts of middle Australia, Payman will discover that many Muslim Australians are set to be hit hard.

Many are shopkeepers, may own their business premises via their superannuation fund and will find themselves paying tax on unrealised capital gains.

The same applies to farmers, including struggling Tasmanian farmers where Jacqui Lambie has a special concern.

When the government first announced the superannuation tax rate would rise from 15 per cent to 30 per cent on income from superannuation savings above $3m, the government’s proposal naturally had its opponents but was widely accepted.

In its original form, plus indexation of the $3m trigger, it would have passed the Senate without a great deal of problem.

I have pointed out previously that the industry funds have antiquated bookkeeping systems and it was discovered that they could not provide the information necessary to levy the proposed tax.

The government didn’t want to back down so used the figure that the industry funds could provide – there would be a tax on gains in the total market value of superannuation funds above $3m including unrealised capital gains. The $3m trigger would not be indexed so quickly it will capture middle income Australia.

It was an outrageous proposition particularly as it will hit farmers, shopkeepers and other families that have their business premises in their superannuation fund.

It was a thinly disguised attack on small and medium sized enterprises – not an area that is high in the government agenda.

Around Canberra last week among the crossbenchers there was discussion about ending indexation, but that was a basic claim.

Many crossbenchers actually want to return to proposals that as far as possible match the government’s initial aim.

Accordingly, one plan was that those who had superannuation funds with modern accounting systems and could provide real earnings for their funds would be taxed at 30 per cent on realised income earned over $3m.

‘No other pension system in the world taxes unrealised capital gains, and it’s not the way the Australian tax system works either.’

For members in funds that could identify and report actual taxable earnings, the proposed amendments completely removed unrealised capital gains from the tax calculation.

This is also the suggestion made by my readers.

Those that could not provide that data would have their funds above $3m taxed on the basis of a deemed earning rate related to the 90-day bank bill rate.

Those who were in funds that had antiquated accounting systems would not have to pay tax on unrealised gains but would have a deemed earning rate.

But of course, industry and retail funds currently unable to provide the data would almost certainly set up a separate fund that used modern accounting systems and members would then have the same investment choices as are currently available. Relatively few people would be linked to a deemed rate of return.

As I understand it, a number of crossbenchers are looking at a proposal along these lines. Whether they are strong enough to stand up to the government is yet to be seen.

But it will be fascinating to see if the new crossbencher, Payman, stands up for middle Australia, including a great many Muslims who aim to be in the middle Australia bracket and don’t want to be smashed.

On the government side my guess is that they will throw in indexation but Treasury see taxing unrealised gains as a huge long term money spinner which will be extended to many asset classes.

In the words of the Self Managed Superannuation Fund Association: “No other pension system in the world taxes unrealised capital gains, and it’s not the way the Australian tax system works either.

“As soon as you depart from actual taxable earnings as the basis for the calculation, there will be plenty of unintended consequences and unfair outcomes, and that’s exactly how this proposed new tax will play out.

“The only way to remove unrealised capital gains is to use actual taxable earnings.”