The Australian government proposes a new tax framework for superannuation fund balances exceeding $3 million, set to commence on 1 July 2025. This tax, known as Division 296 tax, aims to improve the sustainability of the superannuation system over time, targeting high-balance superannuation accounts.
Here are the key elements of this proposal that are publicly available:
- Tax Rate:
– From 1 July 2025, a 30% concessional tax rate will apply to future earnings for superannuation balances above $3 million.
– The Division 296 tax represents an additional 15% tax on earnings, making the effective tax rate 30%.
- Tax Liability:
– The super fund continues to pay a 15% tax on earnings, with the individual liable for the additional 15% tax, separate from their income tax liabilities.
– The Australian Taxation Office (ATO) will levy the tax to the individual member, not the superannuation fund.
- Earnings Calculation:
– Earnings calculation based on the movement between a member’s opening and closing total balances for the year, adjusting for withdrawals, contributions, and other specific exclusions.
– The tax captures unrealised capital gains, as the member’s total superannuation balance includes unrealised gains or losses.
- Tax Payment:
– Individuals can pay the tax themselves or from their superannuation funds, and those with multiple funds can select the fund from which the tax is paid.
– The proposed tax is expected to affect less than 0.5% of individuals with a superannuation account, generating about $2 billion in revenue in its first full year.
– There is no provision for the $3 million threshold to be indexed, meaning more people will be above the threshold over time as super balances increase.
- Legislation Process:
– The government announced the proposal on 28 February 2023. It has recently completed a consultation process, and Treasury released draft legislation on 3 October 2023, it was open for comments until 18 October 2023. Following this, it will proceed to the Parliamentary process for approval.
- 8. No Limit on Super Balances:
– The government does not propose a limit on the size of superannuation balances, and the tax applies only to earnings related to the portion of an individual’s account balance that is above $3 million.
These key points paint a clear picture of how the proposed tax changes on superannuation balances exceeding $3 million will work.
If you are concerned about what this might mean for your current or future super balance and would like to discuss the implications for your super in more detail, please contact our team. We can provide clarity and customise strategies to deal with any consequences of this new legislation on your super.