Super tax concession changes: consultation

As flagged earlier in the year when the announcement was made, the Federal Government has released a consultation paper seeking public views and feedback on its proposal to reduce super tax concessions for individuals with super balances over $3 million, including those with self managed super funds (SMSFs). Some important questions the paper asks include whether the proposal would create any unintended consequences and whether the current proposed proportioning methods are appropriate. Consultation was open for a limited time, until 17 April 2023, and the comments and views submitted will be used to inform the next stage. This measure is not yet law.

To recap, the government proposed in late February that individuals with a total super balance (TSB) of more than $3 million combined in all the super accounts will have their super concessional tax rate changed to 30% from the 2025–2026 financial year onwards. This means from 30 June 2026, the earnings of those individuals on the part of their TSB over $3 million will attract an additional 15% tax. The additional tax will be applied directly to the individual and there will be no change to the tax arrangements within super funds.

The ATO will continue to calculate the TSB of all individuals annually using existing information provided by super funds and SMSFs. Individuals will be able to quickly identify whether they will be subject to the new tax by reference to their TSB at the end of each financial year through myGov. As it is proposed, the threshold will not be indexed and is not shared between spouses, family members or between other individuals who have interests in the same fund such as an SMSF.

Once it has been determined that an individual’s TSB exceeds the threshold of $3 million for the year, earnings related to that part of their TSB will attract an additional 15% tax. First the earnings are calculated as the difference between the TSB for the current year (adjusted for withdrawals and contributions) and their TSB from the previous financial year. If the calculated earnings are negative, this amount can be carried forward and used to offset future earnings for this purpose and no further calculations would be required. Negative earnings will not expire and can be applied over multiple future years. 

Otherwise, where the earnings are positive, the next step is to calculate the proportion of earnings that can be attributed to super balances of more than $3 million on a proportional basis. For example, if an individual’s TSB is $6 million on 30 June 2026, the proportion of TSB that’s more than $3 million is 50%, therefore 50% of the calculated earnings will attract an additional 15% tax. 

The additional 15% tax will be determined by the ATO and levied directly on individuals, similar to the existing tax under Division 293 of the Income Tax Assessment Act 1997 (commonly known as the Div 293 tax). This will also be imposed separately to personal income tax, and it is intended that the amount of tax payable would not be reduceable by deductions, offsets or losses available under the personal income tax system (ie only prior year negative earnings could be applied). Once an individual receives notice of the amount payable, they will have the option of either paying the liability from funds held outside of super or by releasing amounts from one or more of their super interests.

Source: https://treasury.gov.au/consultation/c2023-373973 
https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/superannuation-tax-breaks