Superannuation Alert: Tax changes coming for balances over $3m
The government has today announced a proposal to tax earnings on superannuation balances over $3 million at a rate of 30 per cent, up from the current 15 per cent.
Currently, earnings from superannuation in the accumulation phase are taxed at a concessional rate of up to 15 per cent. This will continue for all superannuation accounts with balances below $3 million.
From 2025‑26, the concessional tax rate applied to future earnings for balances above $3 million will be 30 per cent.
Details are thin and it is unclear whether pension account balances already subject to the $1.7M Transfer Balance Cap will be included in the $3 million balance calculation.
The changes are expected to apply to around 80,000 people, including Australia’s largest superannuation account holder with an estimated super balance over $400 million!
It had been speculated that these announcements were coming following the release of a consultation paper last week outlining the government’s plan to legislate a purpose for superannuation.
Let’s look at the proposed definition and what this might mean for the superannuation system.
The proposed definition
“The objective of super is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
There has been commentary from all sides of the fence trying to interpret what impact the chosen words would have on future superannuation laws and regulations. Below are some of the key phrases and what they may mean:
The paper states “beyond a certain level of income, additional government support through tax concessions is not necessary or appropriate”. This was the first indication that the government were looking to cap tax concessions on larger balances.
It also said that “dignified” related to “financial security and wellbeing in retirement”, while “deliver income” comes back to superannuation’s primary principle of providing retirement income. Again, another indicator that the Government are looking to cap superannuation balances to clamp down on the use of superannuation as an estate planning tool.
“Preserve savings” means that superannuation will be restricted to a person’s retirement only, potentially closing the door on early access schemes such as first homebuyer programs.
The “equitable and sustainable” phrase would aim to provide similar outcomes for people in similar circumstances and government support should be targeted to those in need.
Treasury anticipates “a wide range of views on the particular terms used in the objective, driven by different understandings of the most appropriate terms to capture Australians’ experience and expectations of the superannuation system”
It is highly likely that the Government will make further changes to Superannuation in the next budget, with Treasurer Jim Chalmers confirming there would be a crackdown on unsustainable tax breaks for the richest funds.
In the next Superannuation Alert, Andrew will highlight all of the previously announced and recently introduced superannuation changes to ensure you have an effective superannuation plan leading into the new financial year.
Thinking of taking control of your retirement savings through Self Managed Superannuation or wanting to know more? Reach out to Andrew Ma and the team at FMA Partners for further information.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.