The Australian Government has announced a significant change to superannuation taxation, set to commence on 1 July 2025. This change, introduced under Division 296 of the Income Tax Assessment Act 1997, will impose an additional 15% tax on earnings for individuals with superannuation balances exceeding $3 million. This effectively increases the tax rate to 30% on earnings above this threshold. While this has yet to be legislated, the re-elected Albanese Labor government only needs the support of the Greens in the Senate to get this new super tax through parliament.
Key details of the proposed changes
- Threshold: Applies to individuals with total superannuation balances over $3 million.
- Tax rate: An additional 15% tax on earnings above the $3 million threshold, on top of the existing 15% tax.
- Earnings calculation: Includes both realised and unrealised capital gains, meaning increases in asset values will be taxed even if not sold.
- Implementation date: Effective from 1 July 2025, with the first assessments expected in the 2026–27 financial year.
Implications for investors
The inclusion of unrealised gains in the earnings calculation has raised concerns among financial experts. Critics argue that taxing unrealised gains could lead to liquidity issues, as individuals might face tax liabilities without corresponding cash inflows. Additionally, the lack of indexation for the $3 million threshold means that over time, more individuals could be affected due to inflation and wage growth.
Investors holding illiquid assets, such as property or infrastructure investments, may find it challenging to meet tax obligations arising from paper gains. This could potentially influence investment strategies, prompting a shift towards more liquid assets to manage tax liabilities effectively.
Strategic considerations
For individuals approaching or exceeding the $3 million superannuation balance, it’s essential to:
- Review asset allocation: Assess the liquidity of assets within the superannuation fund to ensure sufficient cash flow for potential tax liabilities.
- Consider diversification: Diversify investments to balance growth potential with liquidity needs.
- Seek professional advice: Engage with your HPH financial advisor to develop strategies tailored to your individual circumstances, potentially including asset reallocation or contributions planning.
Final thoughts
The upcoming changes to superannuation taxation represent a significant shift in the retirement savings landscape. While aimed at targeting high-balance accounts, the broader implications necessitate careful planning and strategic advice.