The Government has now released draft legislation for public consultation in relation to the announced proposal to cap tax concessions on certain high balance super accounts from 1st July 2025.
The draft legislation (referred to as Division 296 tax) largely reflects what was proposed by the Government in the initial announcement and subsequent materials released. Key takeouts from the draft legislation include:
Tax on earnings within accumulation phase is currently capped at 15% and there is no limit on the total amount that an individual can hold in accumulation phase.
Under the proposed changes:
From a tax perspective, the proposed additional 15% tax on calculated earnings may still make super an attractive investment option for high income earners who are currently paying tax at the top marginal rate of 47% (including Medicare levy). However, the relative longer-term tax effectiveness and appropriateness of superannuation strategies will need to be considered on a case-by-case basis. This may include high income individuals who may be impacted when the legislated stage three tax cuts take effect on 1 July 2024.
Other considerations may include:
Final Calibre comments
The proposed super tax changes have been widely criticised. Not because they will make people who are comfortably off pay more tax, but because of the way they have been worked out. There is still plenty of lobbying going on to revise some unpopular aspects of the draft legislation (e.g., the calculation of tax on unrealised capital gains).
Some people have asked whether they should consider taking large amounts out of super to ensure they get back down to the magic $3 million threshold. But the new tax isn’t due to start until 2025-26. It’s not law yet and there’s an election in the meantime. So, there’s no rush and plenty of time to wait and see for now.
Remember also that taking money out of an SMSF usually means selling assets the fund already owns. For people whose SMSF investments have already grown, that means paying capital gains tax “now” rather than some time in the future. The new tax applies only to growth in a member’s super account after July 1, 2025. So, selling assets that have already grown a lot now might be worse than just putting up with the new tax.
It’s also important to remember that whilst this new tax makes super less attractive than it is at the moment, it’s not necessarily going to be so unattractive that it’s worse than the alternatives. Super can still be a highly tax-effective place for retirement savings.
A range of advice opportunities may arise for higher super balance clients if the Bill becomes law. It will be important to review superannuation, other tax structures, investment and estate planning strategies to ensure they are appropriate for each client’s individual circumstances, objectives and needs.
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If you have any questions/thoughts in relation to this article or have a need for some advice and would like to discuss your particular situation, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
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