It's a totally rained-out Christmas Day, so I might as well make it even worse by dwelling on the proposal, announced by the Federal Treasurer on 28 February 2023, to impose an extra tax of 15% on superannuation balances of more than $3 million from 1 July 2025.
With eighteen months to go, there's still time for the proposal to be watered down or, better still, for chinless Airbus Albo to be tossed out of government altogether. Remember the immortal words of the 1972 Whitlam campaign, Albo? It was "It's time", so hit the road. We're done.
As for the proposal, this is as it stands now:
The new 15% tax will impact anyone who has a Total Superannuation Balance of more than $3m which is not indexed. The tax is in addition to any tax their superannuation funds pay on earnings in accumulation phase. As a result, earnings linked to balances above $3 million will generally be subject to a combined headline rate of 30%. The announcement has stirred an uproar in the industry as an unindexed cap of $3m is estimated to impact more than the 80,000 individuals when the extra tax commences in 2025.
The new 15% tax is not an increase on the tax rate on the individual’s taxable income. Instead, the tax applies to a portion of the individual’s earnings (which includes unrealised capital gains!) on their superannuation balance. The calculation has three components:
The Treasury's Factsheet "Better Targeted Superannuation Concessions" gives the example of a fictitious taxpayer named Carlos who is 69 and retired and has a superannuation balance of $10 million. According to this example, Carlos pays $120,750 extra tax on the amount by which his superannuation balance in excess of $3 million grew during the year.
The current-year-minus-last-year superannuation balance increase includes both actual earnings as well as unrealised capital gains. The tax paid on these unrealised capital gains will not be refunded even if the unrealised capital gains are never realised in future years.
How will this impact the 80,000 individuals with large superannuation balances? That's the $3 million question.
