The proposal to include unrealised capital gains in calculating income subject to the additional 15% tax rate on super fund balances over $3 million should lead to an effective cap on balances of $3 million. (The additional personal tax involved is referred to in the draft legislation as Division 296 tax liability). If the administrative costs to individuals of complying with this change, and the cash flow problems of making such tax payments, are as large as critics have argued, no one will want to hold assets above $3 million in super.
In that case the deterrent effect of this change will mean that such taxation never needs to be applied. And the mark of a good deterrent is that it is so effective in affecting behaviour that it never needs to be applied. Individuals will transfer assets above $3 million out of super accounts into their personal account.
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