Concerns are being raised that the Government's recently announced intention to tax pension fund earnings could hit more funds than the 16,000 the Government suggested, according to John McIlroy, executive director at Crystal Wealth Partners.
McIlroy said that the 15 per cent tax on pension fund earnings over $100,000 per individual could hit pension accounts much smaller than the $2 million quoted by the Government using 5 per cent earnings — particularly where ‘lumpy' asset transactions such as property sales arise that generate over $100,000 of capital gains in a particular year.
"If the Government wanted to ensure that the tax change did not have the unintended effect of imposing tax on smaller fund balances in years of higher earnings, then they could easily do so by allowing funds to carry forward any unused tax amounts up to the $100,000 (indexed) threshold," he said.
"This would have the benefit of smoothing earnings, including capital gains, across a number of years, rather than hitting the fund with tax because of higher earnings in a particular year.
"The changes announced will result in a horribly complicated set of rules to manage capital gains anyway, so adding this additional measure into the mix won't make it any worse and will add some protection for smaller account balances."
According to McIlroy, the key measuring date for transitional arrangements regarding capital gains is 5 April 2013, meaning that asset purchases before this date will have over 11 years to ‘transition' until 1 July 2024.
However, McIlory added that apart from adding to the costs of administering superannuation funds, including SMSFs, the proposed changes would impact on the investment decisions of SMSF retirees between now and 1 July 2014 (the effective start date) and beyond.
