Don't believe what they say about a 30% superannuation tax. It is not a 30% tax on large balances, represented by the sum of the existing 15% tax on accumulation funds plus another 15% on balances above $3 million.
It is a completely new tax with a different calculation method. If anyone disagrees with this, answer the question: '30% of what?' There is no answer. It's also not a 'doubling of the tax rate', as many journalists are now writing. Nobody would argue that a 45% personal tax rate and a 10% on GST gives a total tax rate of 55%. The two taxes cannot be added together because the components are different. It’s the same with this new super tax. This new tax (with has no name) is not 2x, it is x plus y.
There is far more to this policy than a simple tax on amounts over $3 million. Consider a simple example: an SMSF holds one asset, an investment property, which delivers taxable income, net of deductions, of $10,000 in a financial year. In an accumulation fund, tax at 15% is $1,500. Assume the property increases in value by $100,000. The new tax is calculated at 15% of $115,000 (income plus unrealised capital gain) with adjustments according to Treasury's formula. That's not another $1,500. These are two different 15% taxes, not a 30% tax.
This new tax is separate from personal income tax or the current tax on a superannuation fund. Although it is based on their superannuation balances, the tax is imposed on the individual, not the fund. Taxpayers could receive a large tax liability notice without the cash to pay it, and revaluing unlisted assets will become a major headache, as an SMSF can hold almost anything and there is a vast range of investments where valuations vary widely, even between experts. Arguments will arise between trustees and valuers due to the taxation of unrealised gains, and it's likely that trustees will shop around valuers for the best number. Trustees will want as high a value as possible for 1 July 2025 and as low as possible for 30 June 2026 and thereafter. If valuations fall, there will be no refund for tax paid in the prior year; however, the 'loss' can be carried forward into subsequent years, but if the valuation falls below $3 million permanently, or the individual dies, there many never be an opportunity to use the carry-forward loss.
At some time in the future, the $3 million will need to be increased; otherwise it would capture too many people and remove the incentive to save in superannuation. Even now, we should stop referring to the limit as $3 million, as that is a future value set now, years before its start. It will never be worth $3 million in today's dollars. With the earliest calculation date for the new tax at 30 June 2026 which is over three years away, assuming inflation at 6%, the future value of $3 million is equivalent to $2.5 million now. Anyone considering the likely impact should think in terms of the value on 30 June 2026 which is about $2.5 million in today's terms.
This $3 million-balance (Total Superannuation Balances, or TSB) applies per person, not for an entire SMSF, and where one member of a couple has $5.8 million in super and the other none, the tax implications are profound versus two people with $2.9 million each. However, it is not possible to transfer super to a spouse except in small amounts. It is also not possible to take the excess amount out of the super altogether, unless the account is already in pension phase (will they impose a maximum amount on withdrawals to keep the money locked in?)
Where a strategy is desired to quickly transfer millions to take advantage of the two limits, it may become a meaningful plan to divorce and give half the super to the spouse as settlement, then take any mandatory separation requirement, and remarry with the super split. This is only one example of the creativity which the new tax will unleash. While on the subject of couples, if one member of a couple dies and passes their super to their spouse as a pension, the balance will be included in the survivor's TSB, and become subject to the new tax if the TSB is large enough.
And, of course, there's always the time-honoured strategy that's already allowed hundreds of thousands of wealthy pensioner to become eligible for the government's age pension: invest in an ever larger family home which, unlike money kept in a superfund, is exempt from all taxes.
Unless this money-grabbing Labor government comes to its senses and makes some meaningful changes to its rushed superannuation changes, our lauded superannuation system will be left in tatters. Already here is plenty of anecdotal evidence that tax consultants and financial planners will work their way around these new laws. The government should ask itself whether it's worth the angst for only $2 billion in additional tax.
If voters don't stop him now, what's Albanese's next move? Negative gearing? The family home? The only fair and 'neutral' tax reform is a long-overdue increase in the rate of GST! It's already 15% in New Zealand, 19% in Germany, and 20% in the U.K. and France. Australia has been sitting on the original 10% since the tax was legislated in 1999.
