The government plans to implement new tax rules for Australians who have saved more than $3 million in superannuation from 2025 under proposed changes.
The goal is to raise more revenue and create a fairer system, with a tax break changes bill unveiled Tuesday by Treasurer Jim Chalmers.
Dr Chalmers said everyone would still benefit from super tax breaks under the changes, but concessions would be less generous for balances over $3 million.
“Australians are making tough choices around the kitchen table, and it’s important the government does the same around the Cabinet table,” he said.
But the opposition has accused the federal government of breaking an election promise by changing tax settings and is expected to oppose the changes.
Here’s everything you need to know about the changes.
What are the tax developments?
The legislation will double the tax from 15 percent to 30 percent on income from retirement balances above $3 million.
The changes to the tax breaks are expected to take effect in 2025, after the next election.
The richest 0.5 per cent of the population would see their preferential tax rate on super contributions double to 30 per cent from 2025 (stock image)
How will the tax be applied?
Your income in your superannuation account will be calculated based on the growth in your account from the start to the end of the year. This growth is taxed at 15 percent.
You should know that during the accumulation phase, winnings are already taxed at 15 percent, so this is an additional tax on top of that.
If you have more than $3 million in your account, this additional fee applies. This $3 million limit will not increase with inflation, so over time more people could be affected.
How to pay the tax?
Australians have two options for paying the tax. They can either use money from their retirement accounts to cover the tax or pay it directly from their own funds.
Who will be affected?
The government says the proposal would affect 80,000 Australians, with around 0.5 per cent of people with super funds currently having a balance above $3 million.
But the Financial Services Council, which represents retail super funds, claimed it would harm 500,000 people in coming decades, including 204,000 today under 30, unless it was indexed on inflation.
The changes will apply to self-managed super funds, APRA-regulated funds and public sector exempt schemes.
Modeling shows it will raise $2 billion in its first year of revenue.
The higher tax rate will also apply to unrealized capital gains on the value of super funds during the financial year, which is a first for the Australian tax system.
The Treasury said the introduction of the new tax regime is necessary to meet the needs of people who use superannuation as a means of minimizing their taxes and for estate planning purposes.
But Peter Burgess, CEO of the Self Manged Super Association, argued that taxing unrealized gains was “not the solution”.
“While the association does not support super members with excessively large balances benefiting from generous super tax reliefs, taxing unrealized gains is not the solution,” Mr Burgess said.
“This will lead to many unintended consequences, challenge the long-standing principles of our tax system, and lead to results inconsistent with the stated purpose of this new tax.”
“The stated aim of clawing back tax breaks for very wealthy retirees is to reduce income losses from existing reliefs.
“It should not be about imposing a new tax which, for some, would not only claw back these concessions, but also result in a higher tax payment than would have been the case if there was no had concessions.”
Major industry bodies and investors have raised concerns over the idea of taxing unrealized capital gains (stock image)
Treasurer Jim Chalmers (pictured) said everyone would still benefit from super tax breaks under the changes, but concessions would be less generous for balances over $3 million.
Can the government pass this policy?
Without coalition support, the government will need the Greens and key opposition MPs.
The Greens want superpayments for paid parental leave in return for their support.
Greens women’s spokesperson Larissa Waters said the proposed changes to concessions were more than enough to cover the cost of super for women on paid parental leave.
“Labor is making women wait for minor measures like paid parental leave that would immediately improve economic equality, but could somehow find $313 billion for stage three of tax cuts,” said Senator Waters.
Dr Chalmers said the Government still planned to provide a pension guarantee on paid parental leave “when we can afford it”.
“The Greens can ask for all kinds of things, they don’t have to manage the places or the budget,” he told reporters on Tuesday.
He said the government had already extended paid parental leave, which had some cost to the budget.