Super Fund Tax Increase on Balances Above $3 Million
The Federal Government has declared its plan to raise the tax rate on super funds for balances over $3 million from 15% to 30%. As the change won’t take effect until July 1, 2025, there is now no need to do anything.
Prime Minister Anthony Albanese has confirmed the proposed tax rise, which is scheduled to go into effect after the next Federal election, in response to rumours that the Federal Government was considering cutting tax exemptions for large super balances. The reform, according to the prime minister will strengthen the system by making it more sustainable.
Less than 80,000 persons, or less than 0.5% of those with superannuation accounts, are anticipated to be impacted by the tax concession’s decline by 2025–2026.
Which earnings will be subject to the 30% rate?
Just the share of earnings corresponding to the fraction of the account balance above $3 million is subject to the higher 30% rate.
Important
The concessional tax rate of 15% will continue to apply to earnings up to a maximum of $3 million.
Who is responsible for paying the tax?
The tax rate on accumulated profits for the superannuation fund will remain at 15%. The additional 15% tax will be the person’s responsibility.
How will income be determined?
In order to account for withdrawals and contributions, earnings will be computed using the difference between the individual’s total superannuation balance (TSB) at the beginning and end of the financial year.
Note
The $3 million threshold will be applied on an individual basis rather than per-account or per-fund basis. A person’s TSB encompasses all of their superannuation interests and is not a distinct amount for each interest.
With ATO online services, individuals can view their TSBs.
The majority of members will not be impacted by this legislation, thus the government wants to avoid imposing big and expensive system and reporting modifications that could have an indirect impact on them. The suggested strategy is based on current fund reporting regulations. The proposed proposal employs an alternate technique to identify taxable earnings for impacted persons because funds do not often report (or compute) taxable earnings at the individual member level.
The following calculation process has been copied from the fact sheet:
The calculation takes into account net contributions (which do not include contributions tax paid by the fund on behalf of the member) and withdrawals to determine the difference between the member’s TSB for the current and prior financial years.
Important
Similar to how superannuation funds now determine members’ interests, all hypothetical (unrealised) gains and losses are included in the calculation of earnings.
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About Lan Nguyen
Lan is the Founder and Chief Strategist at Success Accounting Group, Melbourne based CA firm. In a matter of short 8 years she has built up a reputable Chartered accounting firm with 3 offices and a team of 6 professional accountants and support team members. Her mission is to provide Innovative and Strategic Financial advice to help her customers make smarter financial decisions today for a brighter future.
Success Accounting Group is for established business owners who would like help to grow a sustained business. As a business owner you understand what drives your business success with our accounting team taking care of the rest.
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