Labor to reduce tax concessions for super balances above $3m
Here is what we know so far, what is still to be answered and where to from here.
Firstly, it’s important to acknowledge that the Government’s announcement is a proposal only. It will need to go through the usual parliamentary process and if legislated (as announced), the changes will commence from 1 July 2025 (after the next Federal election).
Secondly, the Government’s announcement proposes changes to the tax treatment of the earnings of superannuation funds for members with large balances only. The end result is that superannuation will still be a concessionally taxed vehicle for retirement savings but, for some, it will not be as concessionally taxed as it is now.
Importantly, 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, and they have not proposed changing the tax free status of eligible superannuation withdrawals from age 60 onwards.
This means superannuation fund members do not need to do anything right now.
What have they proposed?
When superannuation fund members are working and making contributions to superannuation, their superannuation balance is held in an account called an “accumulation account”.
Currently, earnings on balances in accumulation accounts are taxed at the concessional rate of 15%. The Government has proposed changing this tax treatment, but only for members with large balances. Specifically, the tax rate applied to earnings on balances above $3m will be 30% after 1 July 2025, instead of 15%.
It is not clear from the announcement whether or not pension accounts would be included in the $3m.
The Government has stated that this change is not retrospective, because it will only apply to earnings post 1 July 2025.
Where to from here?
The Government have advised that the next stage in the process will be targeted consultation on implementation of the proposed measure, and that this will take place between now and the May 2023 Federal Budget.
Legislation would follow after that with the intention of taking the measure to the next Federal election.
This change will impact less than 0.5% of all Australians, that might be the case right now.
However, the Government has also stated that the $3m limit will not be indexed. With growth in superannuation balances, over time, more and more Australians will be impacted by this change.
If you have any questions, please contact your Bell Partners Adviser.
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