The $3M Super Tax was previously blocked in Senate by a few independents, but it’s now back on the table post the election and the Government has a voting majority in both houses of parliament. Whilst the proposed start date is 1 July 2025, the first key date is 30 June 2026 where the super value is first measured to determine if the new tax applies. This means there is more time to fully consider the different options. We summarise the key proposals below:
- Additional 15% tax (including unrealised gains) on the proportion of earnings on individual super balances over $3 million.
- The $3 million threshold is not indexed – meaning over time, more Australians will be captured as asset values and inflation rise.
- Losses or negative earnings can be carried forward to offset future Division 296 tax. There will NOT be any refunds of previously paid tax. The ‘credit’ will offset future gains.
- The additional tax can be paid from personal funds or from super (excluding defined benefit schemes).
Individuals affected by this proposal need to consider a range of factors. The reality for the majority of clients we have examined to date means the pain of the extra tax is likely to be better in the short term compared to alternative scenarios given other family tax rates, unrealised capital gains tax and stamp duty considerations.
We include an example of the proposed tax calculations in the diagram below:
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- Superannuation earnings are $300,000 (i.e. $4m – $3.7m); and
- $1m or 25% of this amount exceeds $3m, and so only 25% of earnings are taxable; and
- Division 296 tax would be 15% levied on 25% x calculated earnings, or $11,250.
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