As flagged earlier in the year when the announcement was made, the Federal Government recently released a consultation paper 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 asked included whether the proposal would create any unintended consequences and whether the current proposed proportioning methods are appropriate. The new 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 Australian Taxation Office (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.
The additional 15% tax will be determined by the ATO and levied directly on individuals. 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 (i.e. only prior year negative earnings could be applied).