Tax Return

Proposed new legislation will downgrade the SMSF’s usefulness as a means of reducing the Government’s aged pension bill

SMSF Tax Returns

The compilation of superannuation tax returns, and estimation of whatever tax rates apply to a given tax return, will become much more complicated for the tax agent concerned when calculating either the respective tax to be paid, or tax refund due, should the current government’s proposed legislation be enacted.

Previously, SMSF holders in pension mode paid no tax, and received a 100% refund of all/any of their franking tax credits. Under proposed new legislation they pay no tax on income generated from a threshold of $1.6 million of assets held in their SMSF, but 15% of income derived from any residue of capital above the stipulated $1.6 million threshold. The difficulty in calculating their new respective liabilities compounds when the value of assets held in their SMSFs’ fluctuates with market forces above or below the set threshold. Furthermore, assets held in excess of the value of the stated limit now have to be moved to a new accumulation account, and held separately from their pension account.

New retrospective limits have also been set on the sums that members can contribute to their SMSFs’ as after tax contributions, necessitating a vetting of the last 7 or 8 years of contributions to establish what (if/any) future like contributions members are entitled to make The degree of complexity proposed to be injected into the superannuation regime is surprising, given lip service previously paid to the desirability of reducing bureaucracy and red tape.

Much more work will be made for accountants and tax agents, which will result in increased fees being charged to compile many SMSFs’ returns, that would have been better deployed as additional capital invested to grow holders’ balances. The proposed new rules are supposed to be fairer, in as much as preventing large SMSF holders from receiving large tax free incomes, but present as being poorly thought out.

The new rules will inevitably reduce confidence in the superannuation system, as the populace now doesn’t know what to expect next from a government that is incapable of living within its means. People will now find it harder to accumulate enough money to retire on, as the previous tax deductible concessions have also been reduced, and will also be incentivised to become pensioners instead of providing for themselves, so reducing budgetary pressures occasioned by the payment of aged pensions.