Treasurer Dr, Jim Chalmers has said that the labour government will be doubling the tax rate applied on the future earnings for superannuation balances over $3 million as of 2025-26. Currently, this concessional rate stands at 15% but will increase to 30% in a couple of years.
It is estimated that about 80,000 individuals have superannuation balances exceeding this $3 million threshold. However, despite the higher tax rate, this demographic is expected to still benefit from generous tax breaks on any earnings from the $3 million beneath the threshold.
According to government estimates, this adjustment to the tax treatment of the biggest super accounts was expected to generate about $2 billion in revenue during the first year. Terming it a modest adjustment, Chalmers said that the move was consistent with the government’s objective to deliver income for a dignified retirement sustainably and equitably.
The government will be seeking to introduce this legislation soon, though further consultation with the superannuation industry and other stakeholders is expected. The government has also indicated that it may want to set caps on super tax breaks. This is however expected to stir controversy, with the opposition already saying it will block such changes.
Opposition leader, Peter Dutton, has said that such moves would likely discourage younger taxpayers to invest in superannuation given the changing rules and tax increases. He criticised the labour government for habitually attempting to increase taxes on superannuation whenever they run out of money.
SMSF policy expert, Tracey Scotchbrook, said that the labour government should offer CGT relief to those that will be affected by the new 30% tax on balances over $3 million. This is to avoid capital gains being taxed retrospectively. She noted that introducing a threshold did create a tiered tax approach and raised concerns over how unrealised capital gains would be treated.
The Financial Services Council (FSC) wants the government to resolve certain important details not covered in the announcement. This includes how the revenue raised by the tax change will be used. It is recommended that the monies be spent on improving the equity in the superannuation system. FSC CEO Blake Briggs is urging the government to pursue more punitive tax changes that will give consumers more confidence in using the superannuation system to save for their retirement.
The Chartered Accountants Australia and New Zealand (CA ANZ) have however been more lukewarm in their response, questioning the fairness of targeting a small demographic that has been following the rules. The body has expressed concern over the impact of the changes on individuals with multiple accounts, unfunded superannuation, those with divorce settlements, and the treatment of capital gains.
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