Superannuation – Proposal to reduce tax concessions
Overview
Last month the Federal Government announced its proposal to introduce a reduction in the tax concessions available to individuals with a total superannuation balance of over $3m, effective from 1 July 2025.
Proposed changes for retirees with balances over $3m
- It is proposed, starting from 1 July 2025 (2026FY), individuals with superannuation balances over $3m face a higher tax on their superannuation earnings;
- The $3m cap is fixed and is not proposed to be indexed;
- Superannuation fund “earnings” on balances over $3m are proposed to be subject to an additional tax of 15%, effectively increasing the tax rates from 15% to 30%;
- Essentially, “earnings” is an annual calculation of the net growth of an individual’s total superannuation balances, across all their superannuation funds, and includes unrealised gains;
- The individual will be levied with the tax personally and will be issued a notice from the ATO (similar to Division 293).
Retirees with balances under $3m – How will employers need to respond?
- Individuals with total superannuation balances under $3m are not affected by the proposed changes;
- Earnings on pension balances remain tax-free;
- Earnings on accumulation accounts will continue to be taxed at 15%.
What Next?
Treasury has entered a period of consultation before the government introduces the legislation into parliament.
As these proposed changes are not yet legislated and are not due to commence until 1 July 2025, there are no changes to your current superannuation taxation. There are still a number of steps required to take place before the proposed changes are legislated.
What is Not Changing?
Superannuation’s sole purpose is to provide retirement benefits for retirees or their dependants if a member dies before their retirement.
To assist in growing retirees benefits, superannuation is taxed concessionally.
Earnings within superannuation are taxed at a maximum rate of 15% enabling retirees to achieve higher after-tax returns compared to investing outside of super where earnings are taxed at the individual’s marginal tax rate.
Once a retiree meets a condition of release, a pension can be commenced allowing for the income supporting the pension to be exempt from taxation where the fund balance is up to $1.7m (subject to indexation).
Any capital gains on assets held within superannuation are eligible for a 1/3 discount if held for more than 12 months, effectively providing a 10% tax on the gain.
The table below shows the tax on income inside superannuation compared to personal income:
| Personal | Accumulation Phase | Retirement Pension Phase | |
| Income Tax
|
Maximum rate 47% | Maximum 15% | 0% |
| Capital Gains Tax
(Asset held for at least 12 months) |
Discount Rate (maximum) 23.5% | 10% | 0% |
For more information and expert advice, ask to speak to a lawyer at Ezra Legal on (08) 8231 6100 or email reception@ezralegal.com.au
For information on the range of estate planning services that we provide at Ezra Legal, head to:
Michael Fabbro – Principal – Ezra Legal
Julian Roffe
Practice Manager
Ezra Legal
