Why Albo’s radical new $3million super tax is sparking frantic panic selling

Australians are frantically selling assets in self-managed super funds to avoid Labor’s planned tax on balances above $3million.

Anthony Albanese’s plan to double earnings taxes to 30 per cent and introduce a new 15 per cent tax on unrealised gains stalled last year in the Senate, after independent senators David Pocock and Jacqui Lambie expressed concerns.

But Labor’s landslide re-election could see its superannuation tax legislation get through Parliament with just the support of 11 Greens senators, with a July 1 start date.

This means those with more than $3million in a self-managed superannuation fund would have to sell assets like property to avoid the unrealised gains tax, where retirement savings are on taxed on the notional value before assets are sold.

Tax planning accountant Ben Johnston, the director of Johnston Advisory, said his Sydney-based clients were already trying to sell assets in their self-managed super funds to avoid Labor’s new capital gains tax on retirement savings.

‘I’ve got a fair few clients in that position and they’re all really worried,’ he told Daily Mail Australia.

Mr Johnston added that private businesses that owned assets in a self-managed super fund, were particularly worried about the ‘uncertainty on how it’s actually going to apply’ when it came to taxing unrealised gains.

‘A lot of self-managed funds have investments in private entities and that is a concern and also how it’s going to apply to real estate assets,’ he said.

Australians are frantically selling assets in self-managed super funds to avoid Labor’s planned tax on balances above $3million

‘Trying to actualise unrealised gains on property, on an annual basis if that’s how it’s going to land, is going to be somewhat cumbersome as well.’

Small Business Australia executive director Bill Lang said many of his members were also now contemplating selling assets in their self-managed super funds.

‘I could say, definitely, yes,’ he said.

‘We’ve already had a number of questions and enquiries about this in the last few days.

‘Some of the assets may well be the business premises, for example. How do you sell a chunky asset that’s required for the running of your business?

‘There’s a whole bunch of unintended consequences.’

This could include raiding cash reserves to pay a tax liability.

‘The need to pay extra tax but not actually having cash in the portfolio to be able to pay it,’ Mr Lang said.

Labor’s landslide re-election could see its superannuation tax legislation get through the Parliament with support from the Greens, with a July 1 start date,,Pictured are Treasurer Jim Chalmers, Prime Minister Anthony Albanese and Minister for Finance Katy Gallagher

‘If you don’t pay the tax, you’re going to have a tax liability and face tax penalties.’ 

SMSF Association chief executive Peter Burgess said Labor’s proposed tax on unrealised gains would hurt the economy as farmers, small business owners and technology start-ups sold property assets held in a self-managed super fund.

‘What the government’s failing to consider is the knock-on effects in the broader community for the economy,’ he told Daily Mail Australia.

Mr Burgess said self-managed super funds typically owned a business premises, ranging from farms to commercial office space, making Labor’s tax plan ‘very disruptive’.

‘They may need to consider selling that premise out of their fund,’ he said.

‘They’re going to have to call on their cash reserves to pay this tax because it’s being based on a paper gain that they hold in their fund.

‘It means they’ve got less money available for investment in their business – that has a knock-on effect to employment and that affects productivity.’

Taxing unrealised gains could also hamper innovation among start-ups in healthcare and technology, who hold assets in a self-managed super fund.

‘Bad for innovation because we know that when it comes to start-ups, taxing unrealised capital gain is a killer,’ he said. 

‘They will find it difficult to get funding because at the moment, self-managed super funds are investing in those kind of start-ups – they will stop investing in those start-ups if they have to pay tax on unrealised capital gains.’

Labor’s plan to double earnings taxes and introduce a new tax on unrealised gains, above the $3million threshold isn’t indexed for inflation. 

AMP deputy chief economist Diana Mousina calculated this would affect the average-income 22-year-old worker by the time they turned 65.

This was despite Labor’s argument the plan would only affect 80,000 people or 0.5 per cent of retirement savers now.

New senators don’t sit until July.

Labor could pass the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill in 2023 with support from the Greens and backdate it to July 1 (pictured is new Greens leader Larissa Waters)

But Labor could pass the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill in 2023 after that date, with support from 11 Greens senators, and backdate it to July 1.

The Greens want the threshold lowered to $2million from $3million, but their policy includes indexation for inflation – unlike Labor’s plan designed to raise $2billion a year.

Crossbenchers such as senators Pocock and Lambie would no longer be needed to make the superannuation tax proposal a new law.

‘The government only needs the support of the Greens to pass legislation – under the previous Parliament, they needed not only the support of the Greens but they also needed at least three votes from the crossbench,’ Mr Burgess said.

Australia last year had 619,216 self-managed super funds with 1.146million members as multiple people can be members of a self-managed super fund.

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