SUPERANNUATION TAX ON BALANCES OVER $3M

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Most of our clients are now aware of the recently announced change to tax superannuation balances in excess of $3m at 15%. Professionals are still digesting the details and I am sure more facts will emerge over time. It should be noted that legislation will still need to be passed and the tax only comes into play for the 25/26 tax year.

What do we know so far? The tax, as it currently stands will operate as follows.

- The tax is a flat 15% on the growth, realised and unrealised, in your superannuation member balances above $3m from income and capital for the year.There is no distinction between income and capital so no CGT discounting on this tax component.

- Any growth through contributions, rollovers or other events not related to income or capital growth are excluded. Similarly, you will adjust for withdrawals such as pensions or lump sum draws.

- The tax will be levied on the taxpayer not the superfund. You will have the option to pay personally or apply to have it released from a nominated superannuation account.

- Any loss will not create a refund. The loss will carry forward to be applied against future tax.

- The $3m cap is not indexed so in coming years the net will be cast wider.

- The tax is separate to existing SMSF income tax rules which means you will be taxed 15% on the growth of an asset and then CGT upon the sale under normal CGT rules.

What should we do?

- At present, for most of you nothing as we need to see if legislation will be passed in the current form. As the tax applies from 1/7/25 we have plenty of time for planning.

- The one situation that may require action now is If you have a spouse and you have significant account variances with one over $3m and one under. If you are still eligible for contributions, you should be looking at recycling options or allocating contributions to your spouse in order to even balances and minimise the tax impact.

- Similarly, those with balances that will eventually exceed $3m should consider these strategies that seek to even balances between spouses.

- Market value determinations at 1/7/25 will be critical as that will set the base value of your superannuation interests leading into the tax.

- Consider your personal tax rates, as if they are low then removing funds from superannuation could result in a better tax outcome.

- For those on higher tax rates, superannuation will still represent the lowest tax structure.

Example

Jim has a balance of $5.5m at 1/7/25. At 30/6/26 he has $6.0m but has made a non-concessional contribution of $100k and drawn $200k in pensions or lump sums.

The growth is measured as the $500k increase + $200k to add back funds drawn - $100k for the contribution. The account increase attributed to income and growth is therefore $600k.

The balance component subject to tax is the excess over $3m at the closing balance date of 30/6/26 which is $3m. This is 50% of the fund so that factor is applied against the growth.

The result is a tax calculation of $600k x 50% x 15% = $45,000. If you have any questions, please contact our office and we can work through strategies with you.

Important: Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.


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Peter Wohl
Director Summit Group, Aged Care Provider