Treasurer Jim Chalmers caps super tax breaks for accounts with more than $3 million

By Political correspondent Brett Worthington – ABC News (John Apolloni comments are in italics)

Treasurer Jim Chalmers will double the tax rates paid by Australians with superannuation account balances worth more than $3 million, in a move he says is about budget sustainability and equity.

Key points:

The super tax break changes will not take effect until after the next election.  They will see the tax on earnings increase from 15 to 30 per cent on accounts with more than $3 million

The 30% will apply to 100% of a members account balance  on all earnings once your account balance exceeds $3mill. Is this the end of super as a tax haven? The dust still has to settle on this one but are here are some of my thoughts on what we know so far:

• I still believe that super will continue to play a part in the overall tax optimisation strategies that taxpayers will use, though somewhat less beneficial than it currently is.
• From an asset protection perspective Super still protects your super wealth from creditors in the event of bankruptcy
• If my earnings on my super balance at $300k gets taxed at 30% and you can potentially secure a 25% tax rate in a corporate holding entity why would you have more than $3m in super?
• When you overlay the above point with the fact that if you have (currently) more that $1.7m in super and you take a pension or lump sum you will pay top up tax to 30% you really need to do the maths to work out whether super is really tax effective between $1.7m and $3m. I am of the opinion that this will depend on each person’s individual circumstances.
• The new rules will result in a SHIFT in what structure you will grow and protect your wealth. Securing “BASE ENTITY” tax rate of 25% will be the new goal once you have maxed out your $3m in super.
• From a practical application it means that when investing in potentially high growth speculative investments in Super like BitCoin ( or if you just get lucky) you really need to think whether you should invest in that asset in, or out of super.

As we did with COVID and as we did in the decades before with changes in policy from Labour to Liberal federal governments WE WILL PIVOT your “affairs” to optimise your tax obligations.

If you want  to discuss how these new rules may impact on you, call me. 02 4228 4877

The treasurer says the decision is about making superannuation more sustainable.

There has been an escalating war of words between Labor and the Coalition in the past week as the treasurer has continued what he is calling a national conversation on tax breaks paid to fewer than 0.5 per cent of superannuation accounts.

“Currently, earnings from superannuation in the accumulation phase are taxed at a concessional rate of up to 15 per cent,” he said in statement.

“This will continue for all superannuation accounts with balances below $3 million.

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

“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.”

On this time line, the measure would take effect after the next federal election.

Change to net budget $2 billion a year

Government figures released earlier today showed tax breaks on super cost the budget about $51 billion in forgone revenue.

Currently, the government charges 15 per cent tax on superannuation fund earnings, but only while you are still working and contributing money into it, known as the accumulation phase.

The increase to a tax rate of 30 per cent will apply to accounts with $3 million or more during the accumulation phase.

Superannuation earnings on funds with a balance of up to $1.7 million are tax-free in the retirement phase, and this will remain unchanged.

Amounts above the $1.7 million cap are treated as being in the accumulation phase, and taxed at 15 per cent.

The government’s proposal does not change the amount your super is taxed when it is contributed by your employer or by you before tax.

Mr Chalmers said on its current trajectory, the forgone revenue would cost the budget more than the aged care pension within 30 years.

Prime Minister Anthony Albanese said the change would net the government about $2 billion a year.

Albanese eyes off big super balances for budget repair

No final decisions have been made, but those with multi-million-dollar superannuation balances should be nervous as the government searches for ways to fix the budget and fund its plans.

In the past week, Labor has faced accusations of breaking election commitments, having pledged before the election that it had no plans to change superannuation.

The Coalition vowed it would oppose changes to superannuation tax breaks.

That prompted a rebuke from Liberal backbencher Russel Broadbent, who on Monday told the ABC that the Coalition should consider the policy if it would help with budget repair.

But he was adamant the government needed to take the policy to the public instead of just legislating it.

He said he supported a public debate on changes to superannuation taxes to help repair a budget in structural deficit.

“If they are fair and equitable and just — I will repeat that: fair, equitable, and just — I think we should take on board what the government is offering on our behalf,” Mr Broadbent said.

But Shadow Treasurer Angus Taylor, speaking after Labor’s announcement, insisted the Coalition was “not going to be part of it”.

He accused Labor of breaking its election commitment, but when asked if a future Coalition government would repeal the change, gave no indication that would happen.

“Australians don’t want to see election promises broken,” he told reporters.

“And they don’t want to see a government that can’t manage its own spending and has to come after Australians with higher taxes.”

Super account with $400 million (Hmmmm, this is an extreme example)

Fewer than 1 per cent of superannuation accounts have more than $3 million. Of those accounts, the average balance is close to $6 million.

Mr Chalmers said the average account had about $150,000 and would be unaffected by the changes.

In announcing the change, Mr Chalmers highlighted one superannuation account which had $400 million in it. He said 17 people had accounts with more than $100 million.

“We don’t begrudge anyone who has made a lot of money or saved a lot of money or takes advantage of the tax breaks that are legitimately available to them,” he said.

“If you have done well in super, that’s a good thing.”

Mr Chalmers said he had no plans to index the $3 million threshold for the higher tax rates.

But he said Treasury officials would consult with stakeholders on that ahead of the May budget.

“My intention is not to index it because we need to make superannuation more sustainable over time,” he said No final decisions have been made, but those with multi-million-dollar superannuation balances should be nervous as the government searches for ways to fix the budget and fund its plans.