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Government proposes higher taxes for super balances exceeding $3m
Article published on: 01-03-2023
The Government has announced their intention to cap tax concessions on certain higher balance super accounts from 1 July 2025. If legislated, this measure could have estate and superannuation planning implications for higher super balance clients.
Current vs proposed taxation of accumulation phase
Tax on earnings within accumulation phase is currently capped at 15% and there is no limit on the total amount that a person can hold in accumulation. Under the proposed changes, earnings on amounts in accumulation phase above $3 million will be subject to tax at the higher rate of 30%. The proposal will only apply to earnings from the commencement date and will not be applied retrospectively. The measure will not limit the amount that can be held in accumulation phase.
What hasn’t been addressed
Certain details have not been provided, including:
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how the measure applies where a person has multiple super funds
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how earnings are determined
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the impact on transition to retirement accounts, and
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interaction with any balance in a retirement phase pension.
Impact on advice strategies if legislated
A range of advice opportunities may arise for higher balance clients if the proposal becomes law. It will be important to review superannuation and estate planning strategies. Considerations may include:
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spouse contributions splitting strategies between members of a couple, or spouse contributions to maximise total tax concessions available between members of a couple, and
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tax and legal advice to consider the benefits of a family trust.
It is important to note that if a condition of release is not met, it will not be possible to remove amounts in excess of $3 million from super.
The proposed 30% tax on earnings may still be attractive to high income earners who are currently paying tax at the top marginal rate of 47% (including Medicare levy).
If the proposal is introduced, you should consider the long-term tax effectiveness and appropriateness of superannuation strategies recommended, particularly given the legislated stage three tax cuts effective 1 July 2024.
The media release indicated the Government intends to introduce legislation shortly to give effect to this change and will consult with the industry on the proposal.
More information will be provided as it becomes available.
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