Superannuation: New 30% tax rate proposed on super balances over $3m

The government has announced a proposal to increase the tax payable on income earned in super funds where there are members with balances over $3M.

The changes come as the Government’s 2022 23 Tax Expenditures and Insights Statement highlights the super tax concessions cost the government around $50 billion a year, or one-third of the $150 billion of annual tax concessions allowed by the government. It also predicted that super tax concessions are projected to exceed the cost of the Age Pension by 2050.

Currently this is proposed to start from 1 July 2025. This will be after the next federal election so we will need to await the results of that to see where this goes in the upcoming campaign and following the election. The measure is expected to impact around 80,000 people (or 0.5% of people with super accounts) but will generate $2 billion in revenue in its first full year and $3.2 billion over five years.

The proposal is to tax earnings on balances above $3M at 30%. This is double the current tax rate of 15%. How this will be implemented remains unclear, particularly where members hold accounts across multiple super funds or a combination of accumulation and pension accounts. It is possible that the Government intends to manage the additional tax in a similar manner to additional contributions tax on high income earners. This system involves that ATO advising the member of the additional tax due and requires a nomination of where the tax should be paid from, which is then provided to the super fund nominated.

The Government has not proposed limiting the amount that can be accumulated within the superannuation system, members will not be required to withdraw money from superannuation during their lifetime, and they have not proposed changing the tax free status of eligible superannuation withdrawals from age 60 onwards.

The ABC have produced an informative news article detailing how your super is taxed.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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