The Government has announced its intention to change superannuation tax concessions if you have a total super balance of more than $3 million starting from 1 July 2025. While it’s important to understand that this is just a proposal at this time, we appreciate that you may have some questions about whether this could apply to you if it becomes law, so we’ve broken it down simply for you.
Summary of proposed changes:
- Currently, tax on investment earnings within the accumulation phase of superannuation is at a maximum rate of 15%. If you have a ‘retirement phase income stream’, such as an account-based pension after you’ve retired, earnings on investments in these accounts are generally tax free.
- It’s proposed that from 1 July 2025, if you have a ‘total super balance’ (TSB) that exceeds $3 million at the end of the financial year, additional tax of 15% will apply on a portion of your earnings. The new tax will be called ‘Division 296 tax’.
- If your TSB is less than $3 million on 30 June 2026 (the end of the first year it will apply) or the end of any of the following financial years, this change won’t impact you.
How the proposed tax changes will be applied:
- A formula been proposed to calculate fund earnings and any resulting tax liability. Broadly, this looks at your TSB at the beginning and end of the relevant financial year. It then adjusts for certain contributions and withdrawals made during the year to determine ‘earnings’ for this purpose.
- This additional tax only applies to the proportion of earnings that relate to your super balance that exceeds $3 million. Earnings below this threshold continue to be taxed at normal rates. A formula will be used to determine how much of your fund earnings will be liable for this new tax.
- One of the contentious parts of this proposal is that because the DIV296 looks at the change in the value of your super interests over the course of a year. This means that if the value of the assets in your fund increase, then this amount may increase your tax liability (ie an unrealised capital gain). For example, if you hold shares in your account and the share price rises, this increase will be captured in the ‘earnings’ even though you haven’t sold those shares.
Is there anything I should do immediately if I am close to the $3m total super mark:
- It is best to be aware of the possible change, await the final legislation and detail before considering the best option for your circumstances. Remember this measure is proposed to commence from 1 July 2025.
- For many people with super savings above $3 million, superannuation may still offer concessional tax rates on earnings such as when compared to your marginal rate of tax, which could be as high as 47%
- Please contact your client manager or reach out to a financial advisor to discuss your individual situation further.
Are there alternative strategies if DIV296 is of concern to me?
- Yes, q4 client managers are across the complexities of DIV296 and are actively keeping a track of this proposal. The details of the proposal may change before it becomes law and is passed through parliament.
- With this in mind, the team at q4 have had discussions internally about the proposed DIV296 proposal and is giving consideration to this proposal when mapping out client’s tax planning.
As always, if you have any questions we recommend that you reach out to your client manager or our team so we can assist.
Before acting on any General Advice, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) for that product before making any decisions.
