For a number of months now there has been speculation with respect to changes to Superannuation – and in particular members who have significant funds in Superannuation.
The present regimes taxes income as follows:
- Super zero to 15% – (Penalty tax rate of 47% which is not being discussed as funds presumed to be complying.)
- Capital Gains for asset held greater than 12 months- zero to 10%
- Individuals zero to 47%
- Capital Gains for asset held greater than 12 months – zero to 23.5%
- Companies 25 – 30% but moves to individual rate if you want to use the money.
The general strategy for retirement is to use individual tax-free threshold, and then to maximise monies in Super at zero to 15% tax rates.
The government, in its recent kite flying exercises, has been trying to gauge voter sentiment to increasing the 15% top Superannuation tax rate to 30%. Some comments:
- The Government is targeting to impact 80,000 taxpayers – there will always be a concern regarding what is stopping the Government from broadening the net by lowering the $3M threshold.
- They argue that the superannuation benefits overly favour the wealthy and that it will affect less than 1% of taxpayers.
- The start date is 1 July 2025
- The Budget is under financial pressure, and they are looking for additional revenue
- There seems to be no attempt to reign in the waste of expenditure – it is easier to tax those that have been successful and created their own wealth.
So, the present plan, if remaining when legislation is enacted, will in all likelihood mean as follows:
For years commencing from 1 July 2025,
- If your total super balance exceeds $3M
- You will pay an additional 15% tax on earnings attributable to balance > $3M
- Earnings may be defined as the increase in member balance (net of contributions and withdrawals)
- You may be able to pay extra tax from outside super
Does this policy proposal mean you will change your strategy for saving in Super?
- Most likely No,
- If the stage 3 tax cuts remain (and they are being debated at present), then with a tax rate of 30% (plus Medicare) for income between $45,000 and $200,000,it is likely that those affected by this $>3M proposal may seek to earn up to $200,000 per annum outside of the superannuation environment.
- We have no legislation, so apart from being aware, I recommend you maintain your present strategies.
- The detail in the Government announcements is lacking – the devil will be in the detail
How might it work – illustrative example follows:
- Member has $5M in Super
- Members super earns 6% pa
- The amount subject to Additional 15% tax would be
- $2M @ 6% @ 15% would be $18,000 additional tax payable per annum (additional to tax already payable at rates ranging from zero to 15%)
- You would still most likely leave your superfund strategy in place because you are still saving greater than $18,000 per annum than if the money was outside of super (and you were earning significant money in your own names)
But for now, there is over 2 years to wait for legislation and then plan to best manage it.
This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.