Important Super Update
Tax rate proposed to increase for those with super balances over $3M
As you will likely be aware, the current Federal Government has proposed a variety of changes to superannuation. On Tuesday, 28th February, The Honourable Dr Jim Chalmers provided additional information on what these changes will be.
The below is a summary of these changes, as well as concerns and questions that we believe still need to be answered. Any change is yet to be formally presented in Parliament and will be subject to Royal Assent.
The Government proposes to introduce a third tax rate to the superannuation system for what they deem to be excessive superannuation balances of $3M or more. Currently, the tax rate for superannuation earnings in the accumulation phase is 15%, reducing to nil when in the pension phase.
Those in excess of $3m in superannuation will be able to retain their assets within super environment however earnings on assets in excess of $3M will be taxed at 30%.
The $3M test is on a per-person basis and not based on the total assets of the fund which could be held by multiple members
The planned introduction is 1 July 2025.
So, what don't we know yet?
Will the 30% tax rate be applicable to both earnings and capital gains? Currently, a 1/3 capital gain discount is available to superannuation funds that hold assets for greater than 12 months.
Will there be an opportunity to uplift cost bases of assets in superannuation for those impacted by this change as was permitted when the Government introduced the $1.6M pension caps in 2017? This was to ensure that the change of rules was not deemed retrospective.
Will there be an opportunity to segregate certain assets into various components of a member's superannuation caps?
What occurs if, on 1st July, a member is over the $3M cap but during the year the member’s balance falls to below $3M?
How will this change be administered when a person holds over $3m in multiple superannuation funds?
In conclusion…
The introduction of a third tax rate will further complicate what is an already complicated system. The introduction of the $1.6M Transfer Balance Caps and the Total Superannuation Balance rules in 2017 will broadly remove large superannuation balances from the superannuation system in time. Further, additional changes to superannuation create uncertainty for those seeking to build their superannuation and/or approaching retirement.
Image: Bush & Campbell Directors, David Rosetta, Rebecca Nicoll, Daniel Uden, Mathew Smith, Sharon Ferguson, Amanda Powell and Peter King
We’re here to help!
If you have any questions with regard to these proposed changes or other superannuation matters, please get in touch with our team of Bush & Campbell experts.