What does the new Proposed Super Tax mean for you?

New Tax Legislation for Large Superannuation Balances: What You Need to Know

The Australian federal government has proposed new legislation that will change the tax treatment of superannuation account balances exceeding $3 million. This new tax rate will take effect from 1 July 2025. Here’s a breakdown of how this change will work and what you can do to prepare.

How Will the New Tax Work?

1. Implementation Date: The new tax rate applies from 1 July 2025.
2. Threshold: Superannuation balances over $3 million will be affected.
3. Tax Rate: Earnings on amounts above $3 million will be taxed at up to 30%, compared to the current 15%.

Calculation of Tax

• Annual Assessment: The Australian Taxation Office (ATO) will issue an assessment for the additional tax after each financial year - to the member of the superannuation fund not the fund itself.
• Taxable Earnings: The additional tax will be calculated on the difference between your Total Superannuation Balance (TSB) at the beginning and end of each year, adjusted for withdrawals and contributions.
• Unrealised Gains: The calculation includes unrealised movements in your investments.

Example Calculation

• Initial TSB (30 June 2025): $5 million
• End of Year TSB (30 June 2026): $5.5 million
• Withdrawals: $200,000
• Adjusted TSB: $5.7 million ($5.5 million + $200,000)
• Earnings: $700,000 ($5.7 million - $5 million)
• Proportion Subject to Additional Tax: 47.37% (($5.7 million - $3 million) / $5.7 million)
• Additional Tax: $49,738.50 (15% x $700,000 x 47.37%)

Payment of Tax

• Notice of Assessment: Issued by the ATO, making you personally liable.
• Payment Deadline: 84 days from the date of the notice.
• Payment Options: Pay personally or from your superannuation account.

Implications for Pensions and Transfer Balance Cap

Currently, amounts over your transfer balance cap are taxed at 15% in the accumulation phase. Post 1 July 2025, if your TSB exceeds $3 million, the earnings on the excess will be taxed at up to 30%.

Planning Ahead

With the new legislation set to take effect in 18 months, you have time to plan. Consider these actions based on your personal and financial situation:

• Do Nothing: Keep the balance in superannuation and accept the higher tax rate.
• Withdraw Funds: Pay a lump sum to yourself for private investment.
• Realise Assets: Sell assets before the new law takes effect to benefit from lower tax rates.

Keep in mind, transferring funds outside of the superannuation system requires meeting a condition of release, and you may need to revisit succession and estate planning.

Current Status

This legislation is still under debate and has not yet passed. It is important to review your current situation and plan accordingly. If you need advice, contact your financial advisor to discuss your options.

Need More Information? If you have any questions or would like to discuss this further, please contact our office to set up an appointment.