Chalmers backs down on $3m super tax

Treasurer Jim Chalmers has announced the government will no longer apply the Division 296 tax on super balances above $3 million to unrealised capital gains, adding that the threshold will also be indexed and an even higher tax rate would apply to balances above $10 million.

Under the version of the tax that the Treasurer had proposed more than two years ago, all earnings above $3 million would be taxed at 30 per cent, rather than the 15 per cent under current rules. This would also apply to unrealised gains and was not subject to indexation.

The new version would see the additional tax payable only on the realised investment earnings generated by the portion of an individual’s total superannuation balance (TSB) that exceeds $3 million.

Chalmers also announced that a higher tax rate totalling 40 per cent would be payable on earnings from the TSB portion exceeding $10 million, which is expected to affect around 8,000 Australians.

The balance thresholds for both the $3 million and $10 million higher concessional rates will be indexed in connection with the Transfer Balance Cap. 

Alongside these changes, the start date has also been pushed back from 1 July 2025 to 1 July 2026.

Speaking at a press conference on Monday, Chalmers said the government has “always had in our back pocket indexation, or an indexation like this, in order to get it through parliament”.

“These reforms maintain the concessional treatment of superannuation but ensure it is provided in a more equitable and sustainable way,” Chalmers said.

The Treasurer conceded that the reworked tax would raise considerably less than the previously projected $6.2 billion over the forward estimates, which has been revised down to $2 billion over the forward estimates.

“A very big chunk of that is the one-year delay,” Chalmers added.

SMSF Association CEO Peter Burgess told ifa today’s announcement means it is “essentially back to the drawing board and starting again”.

“This is really the only way they could address the taxation on unrealised capital gains,” Burgess said.

He added that following last week’s debate in Senate estimates it was obvious the government had been looking at modelling of proposed amendments.

“I think [Senate estimates] perhaps forced the government’s hand to come out and say what they've said today,” he said.

“But we welcome this announcement. We've worked tirelessly since this legislation was first released pointing out all the unintended consequences for taxing unrealised capital gains, so we're very pleased that the government has listened to those concerns and has agreed to consult with industry on how to bring this new tax in.”

Burgess said the government will now hopefully work with industry to determine how to deliver an appropriate calculation on earnings.

“We've got the taxing of unrealised capital gains off the table. That's what we've been fighting so hard for, for over two-and-a-half years,” he said.

“That was going to have devastating implications, not just for the SMSF sector, but for the broader community, and we're really happy that the government has finally acknowledged those concerns, and is looking to make changes.”

The Association of Superannuation Funds of Australia (ASFA) welcomed the announcement, with chief executive Mary Delahunty saying it is “vital that the super system is equitable and sustainable”.

“Th changes proposed today by the Treasurer are important moves to achieving those goals,” Delahunty said. 

“The proposed changes to tax concessions on earnings in accounts with more than $3 million and $10 million will require Australia’s superannuation funds to do extra work, but we will work with Treasury and the ATO on behalf of the sector to make sure the changes are smooth and achievable for our member funds. 

“We look forward to taking part in Treasury’s consultations on behalf of the sector, to ensure these proposals for a fairer super system are enacted.” 

AustralianSuper chief strategy officer Paula Benson also welcomed the news, including the announcement of the government boosting the low-income superannuation tax offset (LISTO) to $810 from $500 and increase the eligibility threshold from $37,000 to $45,000.

“The Treasurer’s landmark reforms will make super fairer and help Australians build their retirement savings with confidence,” Benson said.

“We are long-time supporters of lifting the LISTO to help people who need it most, especially women with low incomes. The indexing of the Division 296 proposal and taxing of realised gains will ensure the system remains fit for purpose for future generations of Australian workers.

“It’s important for Parliament to legislate the changes to ensure Australians can retire in their best possible financial position.”