Mar 16, 2023 / News

Superannuation

Government Announces Super Fund Tax Increase on Balances Over $3 Million

The Federal Government has announced its intention to increase the super fund tax rate from 15% to 30% for super balances over $3 million. However there is no need to take any action yet, as the change is not due to happen until 1 July 2025.

Following rumours that the Federal Government was considering reducing tax concessions for large super balances, Prime Minister Anthony Albanese has confirmed the proposed tax increase which is due to take effect after the next Federal election. The Prime Minister commented that the reform would “strengthen the system by making it more sustainable”.

The Federal Treasurer Jim Chalmers said “This is expected to apply to around 80,000 people [fewer than 1% of super accounts], and they will continue to benefit from more generous tax breaks on earnings from the $3 million below the threshold”, indicating that the 30% rate will only apply to the part of a large super balance over $3m, with the existing rate of 15% continuing to apply to the first $3m.

One factor which seems to have been overlooked in the announcement is that many super members with balances over $3m already effectively pay 30% at least on contributions, in the form of Division 293 tax.

Federal Treasury has issued a discussion paper Better Targeted Superannuation Concessions which provides some more details of how the changes are proposed to operate. Individuals with total superannuation balances (TSBs) over $3 million at the end of a financial year (including both accumulation and pension accounts) will be subject to the additional 15 per cent tax on “earnings”. “Earnings” is to be calculated as: 
     Closing TSB – Opening TSB + Withdrawals – Contributions (net of contributions tax)

This has the effect of including all unrealised gains in a member’s super accounts in “earnings”. The proportion of “earnings” subject to the additional 15% tax is to be calculated as: 
     (Closing TSB - $3 million) / Closing TSB

And the additional tax liability is to be calculated as:
     15% x Earnings x Proportion of earnings

If an individual makes an earnings loss in a financial year, this will be able to be carried forward to reduce the tax liability in future years. Individuals will have the choice of either paying the tax out-of-pocket or from their superannuation funds. Individuals who hold multiple superannuation funds can elect the fund from which the tax is paid. This tax will be separate to an individual’s personal income tax, similar to the existing Division 293 tax. The $3m cap will not be indexed.

As the changes are not due to take effect until 1 July 2025 and many details are yet to be worked out, there is no need to take any action at this stage. There may even be a change of government in the meantime, resulting in the planned change being abandoned. 

Please contact Alanah Boylon or your Nexia Edwards Marshall advisor if you wish to discuss this or any other superannuation issue.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.