In the ever-evolving landscape of Australian legislation, few topics have garnered as much attention and concern as the SMSF capital gains tax. With the recent draft legislation threatening to upend the financial stability of countless retirees, it’s crucial to understand not only the immediate implications but also the long-term ramifications for future generations.
This article delves deep into the potential consequences of the proposed changes and the government’s questionable tactics in pushing such legislation.
Let me set the scene for you. I work bloody hard for what I get. And when someone wants to come in over the top and take a cut, it pisses me off just a little bit. Particularly if they have already taken a cut on it earlier.
Income and Realised Capital Gains: The Heart of the Matter
At the core of this issue lies the distinction between income and realised capital gains.
SMSFs, or Self-Managed Super Funds, have traditionally been a means for Australians to manage their retirement funds with a degree of autonomy.
However, the proposed changes threaten to blur the lines between these two financial categories, potentially forcing retirees to dispose of illiquid assets just to satisfy a looming tax bill.
Capital Gains Tax: A Threat to Your SMSF and Potentially More
The draft legislation, which public comment for has closed at the time of publishing if passed, would effectively mandate the forced disposal of illiquid assets, a move that could have catastrophic consequences for the market.
And what’s worse is that the tax bill would be levied against the individual. Eeek! Imagine this scenario: multiple SMSFs or individual members of SMSFs simultaneously trying to offload assets to meet their tax obligations.
A flooded market, plummeting asset values, and financial chaos.
Now, let’s consider what may happen should the Grubberment get their dirty hands on your hard-earned retirement funds. Do you think they will stop there? Or do you think that this will be the start of taxing unrealised gains on other assets outside of SMSFs?
I’m going to go with this being the thin end of the wedge, and they will come after other property gains in other areas as soon as the unrealised SMSF capital gains tax draft legislation is passed.
The once-thought-sacred ground of Superannuation is facing another threat. Yes, another. Superannuation is not as protected as you might have thought it was.
It’s Not Just a Boomer Problem
This isn’t just a concern for current retirees; Millenials, Gen X Y and Z, and Gen Alpha will inherit this financial landscape, grappling with the repercussions of an unindexed amount stated in the legislation.
Let me say that again for the people in the back playing with their devices.
The unindexed amount stated in the legislation is reason enough for those currently in their 20s to 40s to pay attention. Your retirements are under more threat than any Boomer. And so are those of your kids!
Why do I say that?
Two reasons, first, the unindexed amounts, and then the fact that the line in the sand is currently written into the draft legislation as greater than $3 million in SMSFs.
But $3 million is quite a lot though… Is it? We’ll look more closely at that in a few moments.
Another Fixed Line in the Sand of Legislation
I want you to consider another example for a moment here where a fixed amount was written into legislation, and consider its unindexed implications too.
Let’s look at the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which places reporting requirements on various activities involving the moving of units of value defined as ‘monetary instruments’ to the value of $10,000 or more as one part. See Section 54(1).
Failing to comply with various parts of this legislation, not just Section 54(1), brings with it penalties such as 2 years imprisonment, or 500 penalty units, or both.
Now here’s the kicker. Penalty units are indexed. But the sum of $10,000.00 or more as written into the legislation is not.
Is this to be considered a deliberate strategy designed to enforce compliance while eroding liberty by way of leveraging inflationary effects in a Keynesian economy? I’m placing my money on ‘yes’.
Why Does Indexing Matter?
Under a Keynesian economic model, the comingling of applied static values, which is a characteristic of Austrian economics, with inflationary penalties is asinine.
You can’t have Austrian values paired with Keynesian penalties. That’s rigging the game.
So, it’s 2023 (at the time of publishing), and the cost attributed to a penalty unit is listed as $313.00 and the trigger for this is when a ‘monetary instrument’ to the value of $10,000 or more is moved in or out of Australia without reporting it per Section 54(1).
500 penalty units multiplied by $313.00 comes to $156,000.00.
Let’s consider the depreciation in the value of $10,000 over 17 years.
What could you buy for $10,000 today when compared to 2006?
Nowhere near as much as what it would cost you to buy the same things today.
The conservative estimates are that the Aussie Dollar has lost 37% of its purchasing power in those 17 years.
To put it another way, if you were to move the same purchasing power in ‘monetary instruments’ (being $10,000.00) today as indexed to the same value that the dollar has lost purchasing power, you would need to move $15,854.25 to have the value be equivalent.
So the fines have gone up, but the underlying value of the ‘monetary instrument’ has gone down. Do you see where I’m going here?
Let’s do some more quick mathematics on this to highlight the point by asking the question about the $3M threshold in the draft legislation again.
Is $3 million a lot?
Maybe in 2023 it looks like a lot.
But consider this, in 2053 for the current 40-year-olds, maybe not. And in 2073 for the current 20-year-olds definitely not.
Consider how much the cost of living and the price of property, as a fundamentally illiquid asset, has gone up in Australia in the last 30 years.
Quick question. Does anyone want to buy a house in Inner Western Melbourne for under $100K? Going once, twice…
That very same property today would cost you just under $1M to buy.
Then let’s add to that the considerations required arising from the report published by Aussie Home Loans in May 2018 looking at the cost of housing data extrapolated over the next 25 years.
Aussie Home Loans, through CoreLogic, project the median house price in Melbourne is projected to be $5.8M+ by 2043. That’s only 20 years away.
When you know the dollar isn't holding value pic.twitter.com/EEGPB5LO3V— ₿ is╭∩╮( •̀_•́ )╭∩╮💰 (@un_tldr) October 21, 2023
So how is the $3M line in the draft legislation sand looking now?
Do you think that some form of indexing is reasonable or required? What would be a reasonable method of indexing? CPI? Let’s come back to that chestnut a little later.
So, why didn’t indexing get written into the draft legislation?
Right now, my infuriated mind can’t help but go to the WEF agenda espoused by Klaus Schwab where he said “You’ll own nothing, and you’ll be happy” which many ‘fact checkers’ claim is taken out of context.
I’m having a hard time swallowing that one right now.
Wake up Millenials, Gen X Y Z, Alpha and whoever is next. This is going to kick your arse a lot harder than any Boomers around today which you may or may not have a grudge against because you think that they had it easy.
By the time you retire, expect the value of the dollar to have comparatively collapsed from a purchasing power perspective. And that $3M which looks like a lot today, and is a ‘future you problem’, it’s gonna be three-fifths of sweet f&#! all.
For clarification’s sake, I’m one of the same generation as you. Not a Boomer. It’s time to pull up your big boy and big girl pants and get shit done!
It’s time to put pressure on your local Member of Par(lie)ment and let them know you won’t stand for this. Because if you don’t, I’ve got a Manic Street Preachers track for you.
But, Is Indexing The Right Answer?
Well, that depends on the integrity of the indexing model we’re talking about.
If it is CPI, then no, indexing under this methodology is arguably flawed.
The reason is that the CPI, or as Mike Moloney rightly calls it the CPLie, is a metric with more elasticity than Reed Richards (you know, Mister Fantastic from the Fantastic Four), and changes its makeup more frequently than Madonna had wardrobe changes when playing Eva Per in Evita.
The CPI being called an ‘experimental measure’ by Saul Eslake, makes you wonder just how much of an economic laboratory you’re really living in.
So how does it work then?
Essentially, when something becomes too expensive to buy, and the population opts for a cheaper product, for example, low-grade mince meat instead of porterhouse steaks, the latter comes out of the CPI basket, and the former goes in.
What this equates to essentially is a race to the bottom in quality of life indicators. What was once a staple has since become a luxury as a result of, drum roll… inflation.
The elastic nature of CPI is such that it is adjusted to make real inflation look less pronounced than it actually is. Sounds like a metric founded on integrity, right?
But that’s not the worst of it for Aussies when talking CPI. Have you a HECS Debt?
Well, your obligations are indexed so the debt goes up consistently. Now, that sounds like an amazing deal to me! Not.
Tell me the system is not stacked against you to keep extracting economic energy from you while you try to keep a straight face. Go on. I dare you!
A Pattern of Deception: The Bank Bail-In Law and Cash Ban Law
So, here’s the thing. SMSFs are increasing, and this pie is looking far too tempting to not take a shot at. So, what do you do?
Learn from your previous mistakes. Make a song and dance about something else big enough to get everyone’s attention, and pull some sleight of hand.
This isn’t the first time the government has employed such tactics. The Bank Bail-In Law, passed on the 14th of February 2018, was approved with a mere voice vote and only seven senators present. Similarly, the attempt to introduce a Cash Ban Law in 2019 further underscores the government’s willingness to bypass public scrutiny for its agenda.
The previous attempts in the last six years to erode the average Aussie’s liberty and financial future were seen in how the Bank Bail-In Law, which was passed on the 14th of February 2018, was approved with a mere voice vote and only seven senators present, and the Cash Ban which was reportedly uploaded to the APH website at 5:45pm on a Friday afternoon, were hurried through under the cover of darkness.
In my opinion, this latest attempt is tantamount to a declaration of war on the average Aussie trying to save for their retirement. When most people don’t want to need to rely on the welfare state, the government seems hell-bent with this move on making that a requirement in their senior years.
The Voice Referendum: A Distraction from the Draft Legislation Issue
It’s no secret that governments worldwide have used distractions to push through controversial legislation.
The Voice Referendum serves as a prime example, a smokescreen behind which the SMSF capital gains tax draft legislation public comment period was sneakily hidden.
Such tactics are not only deceptive but also undermine the very principles of democracy.
Given the record level of distrust for the government, quickly becoming known as Grubberment in Australia, these tactics are causing faith in the system to be lost hand over fist. This is not a left or right, Labor or Liberal point of discussion. The whole system is being called out in public as rotten.
Tell me, during the Voice Referendum, did you see or hear anything about the draft legislation that was open for public comment?
No? Huh… Wonder why?
Conclusion on Unrealised SMSF Capital Gains Tax Draft Legislation
The proposed SMSF capital gains tax changes are more than just a financial concern; they’re a testament to the government’s devious tactics and a call to action for all Australians.
Whether you’re a retiree facing immediate threats or a young individual looking to the future, it’s crucial to raise your voice, engage with your local member of Parliament, and ensure that such underhanded tactics don’t shape our nation’s future.
What to do next?
Even though the period for public comment on the draft legislation has closed, this has not been passed yet. It is time to make your voice heard. Contact your local Member or Senator and tell them what you think.
In closing, it may be worth considering what Kerry Packer had to say in 1991.
For those curious about the full Committee Hearing, see the below.