Changes to superannuation tax rules proposed in Labor’s May budget could reduce retirement savings by significant amounts, industry bodies warn, prompting calls for the government to reconsider the new regulations on managed investment trusts (MITs).
The reforms restrict how capital losses and gains can be offset within MITs held by super funds, potentially increasing the tax burden on these investments. The Association of Superannuation Funds of Australia (ASFA), which represents funds managing over $3 trillion, has urged Treasury to delay the changes and maintain the current loss ordering provisions to avoid unintended consequences for superannuants.
Mary Delahunty, ASFA’s chief executive, stressed the complexity of superannuation tax arrangements and the importance of ensuring that changes do not disadvantage the 19 million Australians with superannuation accounts. “It is good to see Treasury taking time to hear from the sector about how the tax arrangements can best serve retirement savings,” she said.
Other industry players including Hostplus, Colonial First State, the Self-Managed Super Fund Association, the Australian Custodial Services Association, and the Financial Services Council (FSC) have also expressed concerns about the effect of the tax changes on superannuation balances.
Under the proposed rules, MITs would be prevented from offsetting capital losses against capital gains that do not qualify for the capital gains tax (CGT) discount before applying losses against discount-eligible gains. This ordering restriction could raise the effective tax rate from 10 percent to 15 percent on certain undiscounted gains during the accumulation phase, according to the FSC. They estimated this equates to an additional $500 in tax for every $100,000 of affected capital gains.
Modelling conducted by the Coalition and reviewed by the Self-Managed Super Fund Association illustrates the possible financial impact. For a 30-year-old with a typical super balance and approximately 8.5 percent invested in MITs, the changes could reduce their superannuation balance by about $11,000 by age 65, or $4,664 when adjusted for inflation. In a more severe case where half of a self-managed fund’s assets are in MITs, the shortfall could reach $146,210, or $61,608 in real terms.
Labor maintains that the upcoming election may be viewed as a “referendum on superannuation,” defending the tax changes as part of broader budget reforms. Treasurer Jim Chalmers has repeatedly insisted that the superannuation system will be protected. However, opposition spokesman for financial services Kevin Hogan has criticised the changes, asserting that Labor had promised not to impose new super taxes and warning that the proposal will diminish the retirement savings of more than one million Australians.
Concerns have also been raised about the regulatory impact of the new rules. While the government estimates compliance costs at $58 million annually, industry estimates suggest they could be as high as $300 million. Treasury and the Treasurer have indicated they will review submissions and feedback carefully before finalising the legislation but have not committed to reversing or modifying the measures.
The debate highlights ongoing tensions over superannuation tax reform and its potential effects on retirement savings in Australia’s $3 trillion industry.