YOUR SCENARIO

Early last week on 3 October 2023, the Federal Government kicked off a consultation in draft legislation that is set to double the tax rate on earnings from superannuation balances above $3 million.

QUESTION:

If passed Royal Assent, how would the new rules be applied to my superannuation from 1 July 2025?

ANSWER:

Under the draft legislation, the tax rate on earnings from total super balances (TSB) above $3m will double to 30%, while earnings on super balances below $3m will continue to be taxed at 15%.

PRO TIPS

A person is not liable to pay Division 296 (proposed taxable superannuation earnings – “TSE”) tax in the following circumstances:

• • They are a child recipient of a superannuation income stream at the end of the income year.
  • They have had a structured settlement contribution made in respect to them as a payment for a personal injury.
  • They die before the last day of the income year.
  • Foreign superannuation interests have been expressly excluded from an individual’s TSB.
  • The draft Bill confirms that a member’s share of an outstanding borrowing, in relation to a limited recourse borrowing arrangement (LRBA) that is added to a member’s TSB under section 307-230(1)(d) of the ITAA 1997 will not be included in their TSB for Division 296 purposes only.
  • Negative superannuation earnings are quarantined and can only be used to offset future positive superannuation earnings.

For example, Tim’s TSB on 30 June 2026 is $5m. The proportion of his TSB that exceeds $3m is 40% {[$5m – $3m] ÷ $5m}. In this case, 40% of the calculated earnings will attract the additional tax.

A flat tax rate of 15% is then applied to the proportion of earnings attributable to an individual’s balance over $3m. For example, Sarah’s calculated earnings are $250,000; however, only 40% of these earnings are attributed to his TSB that exceeds $3m and attract the additional 15% tax. Tim’s additional tax liability is $15,000 (15% × $250,000 × 40%).

TRAP

If your balance has been left in super but transferred to a spouse due to passing, for example, a reversionary pension or a death benefit pension, it will be counted in the inheriting spouse’s $3 million.

DISCLAIMER

GW Capital Group Pty Ltd General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.