Reform roundtable warning on flawed Div 296 | Australian Markets

The Government must embark on a more strategic, long-term review of superannuation tax settings in circumstances the place its distinctly short-term Division 296 modifications might ship considerably much less than envisaged, in keeping with the Institute of Financial Professionals Australia (IFPA).

In a submission to the Economic Reform Roundtable, the IFPA stated if the coverage goal is to cut back tax concessions for people with high superannuation balances, it believes there are more efficient and principled alternate options that deserve correct consideration.

“For instance, taxing actual earnings above the $3 million threshold, rather than unrealised gains, would better align with established tax principles and avoid penalising individuals for paper gains that may never be realised,” it stated.

“Instead of implementing one other remoted change, we call for a holistic review of superannuation tax concessions to make sure the system stays truthful, sustainable, and match for function. In our view, there are a number of viable alternate options the federal government may discover in place of the Division 296 model, together with:

• Compulsory cashing of extreme balances
• Tax on withdrawals above $3 million
• Simplify superannuation thresholds and caps.

The submission warned that if the Division 296 laws was carried out in its present type it will add vital complexity and uncertainty to the superannuation system, doubtlessly eroding trust, discouraging long-term financial savings, and distorting investment behaviour.

“This would ultimately reduce productivity by diverting focus from value-adding economic activity toward tax planning and compliance, while also stifling investment, growth, and business confidence,” it stated.

“Further, it undermines financial resilience by disincentivising self-funded retirement, which may increase long-term reliance on the Age Pension and different public helps. This weakens the very sustainability the coverage goals to guard.

“Crucially, the anticipated income beneficial properties from Division 296 may fall short. Affected people are prone to restructure their affairs to invest outdoors the superannuation system, resulting in decrease contributions and lowered tax collections over time.

“This behavioural response may erode the superannuation tax base and negatively affect the federal finances – opposite to the federal government’s acknowledged aims. These dangers underscore the need for a more strategic, long-term review of superannuation tax settings, somewhat than one other short-term measure. “