From 1 July 2025 the Federal Government plans to reduce the tax concessions on people with more than $3 million in their superannuation fund. An extra 15 per cent tax will be added to the annual “earnings” of the fund… on top of what they already pay.
The controversy is not just the introduction of a new tax but also that is on unrealised gains in the fund, not just income earned or profits from the sale of an investment. It includes the unrealised gains on assets staying in the fund as well.
The legislation for the proposed changes was unveiled this week.
No refunds if portfolio drops
Earnings to be taxed will basically be anything other than “new money” (such as contributions) that makes the member’s superannuation balance go up. So it will cover a rise in the share or property values in the portfolio which haven’t been sold and remain in the portfolio.
If the portfolio goes down in value there are no tax refunds, instead any losses can be carried forward to offset this new tax on any future gains. But if the fund balance falls below the $3 million threshold, and the new tax doesn’t apply in the future, the offset is just wasted. That is strange.
Only earnings above $3 million
Also the new tax only applies to earnings on the portion above $3 million, not on the whole lot. So if the fund balance is $5 million, the tax only applies to the proportional $2 million.
The immediate reaction of many people may be to sell superannuation assets and make withdrawals to get their balance down below $3 million. But it isn’t as easy as that and people should get professional tax and investment advice.
The tax consequences of selling assets and making withdrawals before July 2025 may be worse than just keeping the portfolio as is.
4 key things to do to maximise your super
1. Consolidate your accounts
Multiple accounts means multiple sets of fees eating away at your savings, so it’s crazy not to pool them together.
2. Nominate a beneficiary
If you pass away unexpectedly and haven’t nominated a beneficiary, your super fund will decide who gets your money.
3. Review your insurance
Super funds often automatically provide new members with some combination of death, disablement and income protection insurance. But do you have enough cover?
4. Choose your investment option
Most super funds offer a choice of different investment options to cater for a range of investment strategies. To maximise your superannuation, you may need to move to a different investment option.
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