Government confirms super balances over $3m to be taxed at 30%

Individuals with superannuation balances surpassing $3 million will see their tax rate double to 30 per cent from 2025–26, Treasurer Jim Chalmers said on Tuesday.

Currently, earnings from superannuation in the accumulation phase are taxed at a concessional rate of up to 15 per cent, with the Treasurer confirming in a statement that this will continue for all super accounts with balances below $3 million.

“The modest adjustment we announce today means 99.5 per cent of Australians with superannuation accounts will continue to receive the same generous tax breaks, and the 0.5 per cent of people with balances above $3 million will receive less generous tax breaks,” the Treasurer said.

“From 2025–26, the concessional tax rate applied to future earnings for balances above $3 million will be 30 per cent,” Dr Chalmers continued.

“This is expected to apply to around 80,000 people, and they will continue to benefit from more generous tax breaks on earnings from the $3 million below the threshold.”

The Treasurer added that the 2022–23 Tax Expenditures and Insights Statement released on Tuesday shows that the revenue foregone from superannuation tax concessions amounts to about $50 billion a year, with the cost of these concessions projected to exceed the cost of the age pension by 2050.

“This modest adjustment to tax breaks for the biggest accounts is expected to generate revenue of about $2 billion in its first full year of revenue after the election,” the Treasurer said.

“This modest adjustment is consistent with the government’s proposed objective of superannuation, to deliver income for a dignified retirement in an equitable and sustainable way.”

The government is set to introduce enabling legislation to implement this adjustment “as soon as practicable”. Further consultation are expected to be undertaken with the superannuation industry and other relevant stakeholders to settle the implementation of the measure.

The Financial Services Council (FSC) acknowledged the certainty provided by the government’s announcement on Tuesday but noted that important details still needed to be resolved.

“The FSC urges the government to commit to using the revenue raised from the $3 million cap to improve equity in the superannuation system, particularly paying superannuation contributions on the government paid parental leave scheme,” said FSC chief executive officer Blake Briggs.

“The government should go further and rule out more punitive changes to superannuation taxes so consumers can be confident using the superannuation system to save for their retirement.”

Additionally, the FSC committed to working constructively with Treasury through the consultation process regarding details that need to be resolved, including:

• The long-term impact if the $3 million threshold is not indexed;
• The interaction with the transfer balance cap;
• How investment earnings will be calculated;
• Impacts on consumers in accumulation phase who are unable to adjust their super balances; and
• How contributions from structured settlements on personal injuries will be treated.

Meanwhile, in its reaction to the changes, Chartered Accountants Australia & New Zealand (CA ANZ) questioned the fairness of a “large attack” on a relatively small number of individuals who it said have followed the rules.

“Investing in superannuation in this country is like trying to shoot a moving target flying in circles over shifting goal posts,” commented CA ANZ superannuation and financial services leader Tony Negline.

“The lead time is good as the changes will come into force after the next federal election, but it is still a major impact proposed on a small number of people who haven’t done anything wrong — they played by the rules and now the rules have changed.”

According to CA ANZ, there are significant questions about the potential unintended consequences that may flow from the government’s super tax changes.

The professional body questioned what would happen to people with multiple accounts, whether the changes would apply to unfunded superannuation, what distortions it might cause over the next three years, what impact it would have on divorce settlements, and how capital gains in super would be taxed under the new policy.

“How can we ask people to invest in super now when you won’t know what rules will apply by the time people will need to access their money?” Mr Negline concluded.