There has been much ruckus in the media about a proposed new tax for superfund balances over $3 million.
This article breaks down the basics of what you need to know:
Current rules
First thing to note, is these proposed new rules are not yet law! So watch this space.
Very broadly, under the current rules, the taxable income of a complying superannuation fund is subject to certain concessional treatment:
· Funds in accumulation mode are generally taxed at 15% on earnings (including concessional contributions).
· Capital gains receive a one-third discount and are generally taxed at 10%
· Earnings in Funds that are in pension mode are generally tax-free.
Proposed new rules
Under the Government’s recently announced proposal, the new rules are set to kick in from 1 July 2015. The new rules impact individuals that have a total superannuation balance of greater than $3 million. The new rules will not impact individuals with superfund balances of less than $3 million.
Under the new rules, an additional 15% tax will be imposed on earnings on a proportionate basis for balances over $3 million.
It is proposed that this additional tax will be imposed on the individual member and not on their superfund. However, the individual will have an option to withdraw moneys from their superfund to cover the additional tax.
Some key criticisms (and there are many!)
According to the Government’s consultation paper, it is proposed that the $3 million threshold will not be indexed. Seems a little illogical in an economic environment with high inflation and rising prices.
Further, there is a potential that the tax may apply on unrealised gains. To explain, the $3 million threshold is determined at the end of each financial year and is broadly calculated taking into account market values of assets. Therefore, if an asset (such as property) has increased in value such that it takes an individual’s super balance over the $3 million, then that will land that individual in new proposed tax land, even if the asset has not been sold and is still held. This is a major criticism and goes against general tax policy in Australia as capital gains are generally taxed on a realised basis.
If you would like to understand how these rules may impact you, please contact us.
Please note, this article is intended to be general in nature and is not financial advice. If you have any questions about how these rules may apply to you, we recommend you seek the advice of your professional advisor.
