Proposed superannuation tax changes

What they are and how they may impact you

The announcement by the Albanese Government to increase the concessional tax rate on superannuation balance above $3 million from 1 July 2025 would have surprised many Australians.

Currently, superannuation balances are taxed concessionally at 15%, with the Federal Government announcing that it will increase the tax rate to 30% on superannuation balances above $3 million –   double the current concessional tax rate.

The Federal Government has indicated that this change to the concessional tax rate will only impact 0.5% of Australians (approximately 80,000 people), as only this many people have superannuation balances of more than $3 million dollars.  However, it has been noted that those affected by these changes could be greater than the Federal Government’s estimates as there may be many superannuation funds that may not have undertaken valuations of the assets within the fund since acquiring them.  As such, the actual balance within the funds could be much closer to or more than the new $3 million dollar threshold.

The purposes behind these changes are due to the Federal Government’s intention and commitment to:

      1. Reduce the inherited debt from the previous government. It is estimated that these changes will contribute at least $900 million to the Federal Government’s forward estimates.
      2. These changes are unlikely to impact the vast majority of superannuation funds.
      3. The changes only apply prospectively from 1 July 2025.
      4. The current concessional tax rate at 15% costs the Federal Government approximately $50 billion each year and is unstainable in the long term, in particular due to superannuation funds with large balances benefitting from these concessional tax rates, which adds to these costs to the Federal Government.
      5. Fix the deficiencies in, and strengthen, the superannuation system so as to make it fairer to everyone by providing that those people with large superannuation balances do not benefit from the concessional tax rate and treatment available to smaller superannuation funds.

The Federal Government has stated that this change is not designed to attack nor cause detriment to  people and superannuation funds that have been well managed with successful and growth in value; rather these changes are to ensure the future stability and viability of the superannuation system and the Federal Budget.  Furthermore, the benefits from the changes will greatly assist in the economic management of Australia.

Although these changes have not yet been implemented, the Federal Government has indicated that these changes will form part of its Budget due to be released in May 2023, prior to which it will provide further details around the impacts and additional details in respect of these changes.

The Government has also stated that it will undertake consultation on the implementation with industry sectors so as to ensure that the changes are correctly implemented.  It has also indicated that there may be further proposed changes to the superannuation system, which may result in an even greater percentage of superannuation funds being impacted.

As things currently stand, only limited details have been provided in respect of the Albanese Government’s proposed increase to the concessional tax rate on superannuation balances above $3 million.  We are keen to see the consultation papers or even a finalised version of these changes, given that May 2023 Budget is fast approaching.  Nevertheless, now is a good time to speak to your advisory team about ensuring that your superannuation fund is prepared for the proposed changes.

Please don’t hesitate to speak to your advisor in Wisewould Mahony’s Business & Commercial Services area.