At a glance
The proposed changes
“The draft bill implements the announcement of February 2023 to tax earnings from superannuation for balances over A$3 million at an additional 15 per cent.
“This is in addition to ordinary super fund earnings tax, which is normally either 15 per cent in the accumulation phase or 0 per cent in the drawdown phase. A calculation is done of your change in total balance over a normal financial year adjusting for contributions and withdrawals.
“The amount of earnings over A$3 million is then broken out as a sort of a pro‑rata calculation based on one’s holdings at the end of the year. Once the ATO have the necessary information that allows them to make an assessment, they will send through an assessment to the taxpayer, who would then either need to pay it out of their pocket or forward it to their super fund for payment, or a combination of both of those methods.”
Key issue of indexation
“It is important to note that the A$3 million threshold is not intended to be indexed. This is actually anomalous in the world of superannuation as almost everything else that fund members expect to be indexed is.
“Contribution limits are indexed, the transfer balance cap is indexed, and thresholds for any applicable taxation of lump sum benefits are also indexed.
“Fund members don’t expect to see their benefits eroded by thresholds that are not indexed, and they shouldn’t be surprised by finding out the hard way in the future that they are suddenly subject to what is basically ‘bracket creep’ on what will eventually be a relatively low balance.”
The super objective
“The ‘Better Targeted Superannuation Concessions’ measure is a big change, which has far‑reaching effects not only on superannuation, but the very idea about superannuation as a savings vehicle.
“When a government announces a measure like this one, there is complex and contradictory messaging about whether the message has changed. Are we trying to stop money flowing into super, or are we now saying that it is OK, because we now have a new tax for higher balances?
At the same time, we still have no tax relief for people with lower balances and who are on lower incomes. They may still be financially punished due to the normal super earnings tax, which might be higher compared to savings outside of super.
“One objective of super is a crucial set of guidelines that will help us understand what the answers are to these questions.”