Reducing super tax cap to $2m 'a concern': FAAA

Financial Advice Association Australia (FAAA) chief executive Sarah Abood has voiced concerns about the future of Div 296, given Labor's overwhelming victory at the federal election.

The proposed 30% tax on superannuation balances above $3 million could see the threshold reduced to $2 million if the Greens get their way.

"It will be the Greens, most likely, that Labor will negotiate with in the Senate, and they have asked for further changes. They've looked for the threshold to be reduced to $2 million from $3 million," Abood said.

"So that will obviously catch quite a lot more people. They're also looking for a ban on lending in self-managed super funds on property."

Abood said lowering the threshold will put many more retirees at risk, including those who are farmers and small business owners that may keep their businesses and property within an SMSF.

"They will likely be really challenged by this, and it may force sales of some of those assets in order for the tax bill on unrealised gains to be paid. So, we do have some concerns."

In addition, as the industry awaits who will be named the new financial services minister, the FAAA said it intends to hand over a long list of "critical" advice reforms.

"As soon as we know who that minister is, we'll certainly be taking to that minister a pretty long list of things that we think are important to get action on soon," Abood said.

Abood said after engaging with members, the five key asks of the new financial services minister will be to fix the Compensation Scheme of Last Resort (CSLR); provide advisers access to the ATO portal; deliver effective Delivering Better Financial Outcomes (DBFO) reforms and implement a standardised fee consent form; instigate a financial services "razor-gang" to cut red tape; and support new entrants to the financial advice profession

"Fixing the CSLR in particular, fixing the funding model to ensure that it's sustainable, and it's fair, that is absolutely our number one priority. It has been for a while and will remain top of our list for the new minister to be addressing," Abood said.

"The other high priority issue, of course, is DBFO. The legislation is half there. We've talked about cutting red tape. The first tranche of reforms were aimed at trying to help that situation, but there's no doubt that there's still a hell of a lot of work to do there to get rid of unnecessary red tape."

De-regulation has been a sticking point for the industry, with SMSF Association (SMSFA) chief executive Peter Burgess agreeing that the complexity behind the DBFO reforms undermines the core policy objectives.

The SMSFA urged the government to reconsider key aspects of its proposed financial advice reforms, cautioning that consulting on key reforms in isolation risks increasing complexity, red tape and the cost of providing financial advice, undermining the core policy objectives.

"While we support reforms that aim to increase access to affordable, quality financial advice, these measures must be implemented collectively, not piecemeal, and they must maintain a level playing field for all advice providers - including the many small businesses serving SMSF trustees," Burgess said.

"The Association is concerned about the proposed collective charging model that allows large superannuation funds to deduct advice costs from member accounts - a luxury not available to financial advisers, who must charge clients directly and meet strict disclosure requirements."

Burgess warned that the model risks entrenching an unfair competitive advantage.

"Superannuation funds will be able to offer so-called 'free' advice when, in fact, the cost is being cross-subsidised across members," Burgess said.

"Further, without clear parameters defining what constitutes 'simple' versus 'complex' advice, the proposal opens the door to inconsistent application across funds."

The SMSFA has urged the government to pause the current package and release the full suite of proposed reforms for comprehensive consultation.

"The pathway to legislative change is long and difficult, so we must get this right now. Partial reform risks making the system more complex, not less," Burgess said.

"To achieve meaningful change, we need coordinated action - not fragmented rule-making that embeds more challenges for the profession."