A new consultation paper has been released by the Albanese government to seek feedback on its planned changes to the taxation of high superannuation balances.
In February, Treasurer Jim Chalmers confirmed that the government intends to increase the concessional tax rate applied to accumulation phase earnings from 15 per cent to 30 percent for individuals with super balances exceeding $3 million from the 2025–26 financial year.
The consultation paper published by Treasury last Friday provides an overview of the proposed model for identifying who would be affected, how tax would be calculated, and what the changes would mean for individuals and trustees.
Treasury noted that the policy would apply to those who have a total super balance (TSB) above $3 million across all of their accounts, including SMSFs and APRA-regulated funds.
“Earnings on the part of an individual’s TSB over $3 million will attract an additional 15 per cent tax. Earnings for this purpose will be calculated using a formula. Where an individual has multiple superannuation accounts, a combined earnings amount will be calculated,” it said.
The additional tax, applied directly to an individual, would be determined by the Australian Tax Office (ATO), which already receives a wide range of information from super funds.
“Once the ATO has calculated the tax liability, a notice of assessment will be sent to the individual. This is separate to the individual’s personal income tax,” Treasury said.
Affected individuals would be able to elect to pay the tax directly using personal assets, or by releasing money from their super account.
Since the majority of members would not be affected by the changes, Treasury noted that the approach outlined in the consultation paper seeks to avoid imposing significant and costly systems and reporting changes that would impact other members.
‘Cautiously optimistic’
In response to the release of the consultation paper, the SMSF Association indicated that it was cautiously optimistic.
However, the association argued that various items that are included in a member’s TSB, particularly unrealised capital gains, should not be subject to the new tax “for reasons of fairness and equity and to avoid unintended consequences”.
“In this regard, it is pleasing to see the consultation paper seeking feedback on what modifications should be made to the TSB calculation for the purposes of estimating earnings,” commented SMSF Association chief executive officer Peter Burgess.
“It is also pleasing to see the paper seeking feedback on alternative methods of calculating earnings on balances above $3 million — in our view, there are alternative methods that could be considered, and it is important these are appropriately aired along with the advantages and disadvantages.”
While the consultation paper suggested that the new arrangements should apply equally to SMSFs and APRA-regulated funds, Mr Burgess said that including unrealised gains “unfairly targets” SMSFs considering their exposure to direct property assets.
“The paper notes the obligations for trustees to properly formulate an investment strategy, but it’s important to recognise that it’s not against the rules for an SMSF to hold most of its assets in a single investment,” he said.
“The legislation requires trustees to consider whether the fund is adequately diversified given the risk profile of members, the fund’s investment objective, and the cashflow and liquidity needs of the fund.”
Mr Burgess added that it would not be “fair or reasonable” for trustees to have foreseen the payment of the tax prior to its announcement, which could be substantial in some years.
“It’s generally not possible to sell part of a farm, for example, so the imposition of this new tax may, in some cases, require the property to be sold causing business disruption and triggering what could be substantial transaction costs,” he noted.
CPA issues warning
As part of its consultation, Treasury has posed a number of questions in relation to the proposed changes, including how an individual’s total super balance and earnings above $3 million would be calculated. Interested parties have been invited to submit a response until 17 April.
The super tax changes received a mixed response from funds, industry bodies, and other groups upon their announcement. While some welcomed them as a step towards fairness and sustainability in the super system, others accused the government of shifting the goalpost.
More recently, CPA Australia said the government was acting prematurely by introducing the changes at the same time as it consults on an objective for super.
“This is a piecemeal change that should not be made in isolation. Constant and piecemeal changes undermine the community’s confidence in the superannuation system and government policy,” the accounting body said.
According to CPA Australia, there are still many questions that need to be addressed regarding the implementation of these changes and any potential unintended consequences.
“There is a real risk average Australian families and small business owners will be adversely impacted, particularly due to the lack of indexation of the $3 million threshold and the taxation of unrealised capital gains,” it said.
“As the $3 million index is not indexed, more people will be captured and impacted over time.”
The accounting body urged the government not to proceed with the changes until an objective of super is defined and legislated.
“These changes must be considered as part of a broader discussion regarding superannuation tax, concessions provided, and the complexities created by the myriad caps, thresholds and limits currently in place. Any discussions regarding superannuation reform must also consider the interaction with the tax and transfer system,” CPA Australia said.
