4 minute read

Proposed changes to taxation of superannuation for high-value account holders

Next Article
“Characters”

“Characters”

Accountant

By Warren Strybosch

On 28 February 2023 the government announced they would be increasing the tax paid on superannuation fund earnings for high-value superannuation account holders.

This initiative will target people with a total superannuation balance exceeding $3 million and is expected to apply from the 2025-26 financial year. The scheme will not be implemented until 1 July 2025 - after the next Federal election.

At the present time, details of how the scheme will work are limited. The government has announced it will consult with the superannuation industry regarding implementation of the scheme.

The current situation

Superannuation funds pay tax on their investment earnings. The following table illustrates the rate of tax generally paid.

This proposal does not apply to individuals with a total superannuation balance of less than $3 million.

Total superannuation balance

The total superannuation balance is the sum of all amounts a person holds in the superannuation system. It is calculated on 30 June each year and, at a high level, includes:

• amounts held in accumulation accounts, and in defined benefit schemes,

• amounts held in pension or income stream accounts, such as an account-based pension,

• amounts in the course of being rolled over from one super fund to another on 30 June,

• the amount of any outstanding limited recourse borrowing arrangement held by a selfmanaged super fund, in certain circumstances.

Any amounts contributed to superannuation as a personal injury contribution are excluded from the calculation of the total superannuation balance.

You can track your total superannuation balance by checking your MyGov account, or by contacting your superannuation fund.

A person’s total superannuation balance is critical when determining:

Tax on earnings?

While the government’s announcement and media commentary suggest an additional tax will be paid on superannuation fund investment earnings, this is not entirely correct.

Firstly, the tax calculation is based on an adjusted movement in a person’s total superannuation balance rather than on the actual earnings of their superannuation accounts. As a result, the extra tax may become payable on unrealised capital gains.

Secondly, the tax will not paid by the superannuation fund – rather it is levied on the individual member, personally. Once a tax assessment is issued, members will have the option of paying the tax personally to the Australian Taxation Office (ATO) from their own savings, or having the tax payable released from their superannuation account.

Finally, while it is estimated that less than 80,000 Australians will be affected by the additional tax, this will grow over time as it appears the $3 million threshold will not be indexed to keep pace with inflation. Over time, more Australians will be subject to this additional tax.

Calculating the tax

People with a total superannuation balance that exceeds $3 million will pay an additional tax of 15% on a portion of the earnings on their superannuation.

• if they will be affected by the proposed change to taxation of superannuation fund earnings and, if so,

• how any additional tax will be calculated.

The calculation of tax payable when a person has a total superannuation balance exceeding $3 million is complex, however the following steps and worked example may help to illustrate how the proposed tax will be calculated.

TSB current FY - TSB previous FY + Withdrawals - Contributions = Earnings

Step 2 - calculate the proportion of earnings corresponding to funds above $3 million.

TSB current FY - $3 million

TSB current FY = Proportion of Earnings

Step 3 - calculate the tax liability.

15% X Earnings X Proportion of Earnings = Tax Liability

Example

Jolene had a total superannuation balance of $4,200,000 on 30 June 2026. Her total superannuation balance on 30 June 2025 was $3,750,000.

During the 2026 financial year contributions of $30,000 were made. During the year Jolene withdrew $100,000 from her super as a lump sum.

Step 1 - calculate earnings.

$4,200,000 - $3,750,000 + $100,000 - $30,000 = $520,000

Step 2 - calculate proportion of earnings.

$4,200,000 - $3,000,000 = 29% $4,200,000

Step 3 - Calculate the tax liability.

15% X $520,000 X 29% = $22,620

For the 2025-26 financial year, Jolene will have a tax liability, based on the earnings of her superannuation fund, of $22,620.

If the calculation of earnings results in a negative (loss) amount, the loss is carried forward to future years.

What action should I be taking now?

The proposal announced by the government on 28 February will be subject to lengthy consultation before it moves to the next stage. Legislation will then need to be passed for the proposal to become law.

Currently, the government does not propose introducing the measure until 1 July 2025, which is after the next Federal Election is due to be held.

For people likely to be affected by this measure, take time to understand how it works and how you may be affected.

Important Information

There is still a lot of uncertainty around the measure and its eventual impact.

Taking immediate action, like withdrawing money from superannuation, is probably not a strategy that should be pursued at this early stage unless you had plans to withdraw your super irrespective of this proposal. Once money is withdrawn from superannuation, particularly for individuals with significant account balances, it is unlikely you will be able to recontribute it to superannuation.

Importantly, before taking any action in response to the government’s proposal, speak with your financial adviser or other financial professional.

Warren Strybosch

You can call them on 1300 88 38 30 or email info@findaccountant.com.au www.findaccountant.com.au

This information is of a general nature only. It does not take into account your particular financial needs, circumstances and objectives. You should obtain professional financial advice if you have not already done so before acting on this information. You should read the Product Disclosure Statement (PDS) before making a decision to buy or sell a financial product. Any case studies, graphs or examples are for illustrative purposes only and are based on specific assumptions and calculations. Past performance is not an indication of future performance. Superannuation, tax, Centrelink and other relevant information is current as at the date of this document. This information contained does not constitute legal or tax advice.

This article is from: