30% Tax on Super Earnings Above $3m
This is the final step before the legislation is introduced into Parliament and a step closer to reality. The draft legislation appears largely unchanged from the Government’s original announcement.
How does it work?
The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.
The Treasury’s media release from 28 February 2023, gives a fact sheet that explains in more detail.
An example from the factsheet shows how the aim is to apply a further 15% tax on the proportion of the “earnings” of the fund that relates to an account balance in excess of $3 million:
Balance exceeding $3 million
- Warren is 52 with $4 million in superannuation at 30 June 2025. He makes no contributions or withdrawals. By 30 June 2026 his balance has grown to $4.5 million.
- This means Warren’s calculated earnings are:
$4.5 million – $4 million = $500,000
- His proportion of earnings corresponding to funds above $3 million is:
($4.5 million – $3 million) ÷ $4.5 million = 33%
- Therefore, his tax liability for 2025-26 is:
15% × $500,000 × 33% = $24,750
This tax is levied on Warren and is in addition to taxes currently payable by the superannuation fund on the fund’s income. Due to the proportional calculation, the more you have in superannuation over $3 million, the greater impact the new tax will have on you. This will be particularly challenging when unrealised gains are taxed, as you may not have the cash to pay the additional tax.
It is true that with more than two years before this proposal is due to start, a lot can change. However, it pays to plan ahead of time.
From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle.
Ruddicks staff have recently undertaken comprehensive training on the new proposals. If you have a total superannuation balance of over $3 million, or are heading towards that amount, we strongly recommend you discuss your personal situation with your trusted Ruddicks advisor, and take advantage of potential planning opportunities before these new laws are implemented.
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The content of this newsletter is general in nature. It does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. Ruddicks accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. This information is current as at 7 November 2023, and was published around that time. Ruddicks particularly accepts no obligation or responsibility for updating this publication for events, including changes to the law, the Australian Taxation Office’s interpretation of the law, or Government announcements arising after that time.
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