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.
-Ian Hogbin
Posted 08.03.2023
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