Labor has proposed to reduce tax concessions for super balances above $3m
Naturally, any announcement of changes to superannuation and related tax rules results in anxiety and frustration that the goalposts are moving yet again. The Australian Government’s recent proposal to change the tax treatment of the earnings of superannuation funds for members with large balances is no different. However, it is essential to recognize that this is just a proposal and will need to go through the usual parliamentary process before becoming law.
If legislated, the changes will come into effect from 1 July 2025, after the next Federal election. The Prime Minister has also confirmed that there will be no changes to superannuation during the current term, and the proposed changes would only apply during the next term.
The proposed changes are aimed at members with large balances in their superannuation funds. It is still unclear what the threshold for a “large balance” will be, but the Government has stated that the proposed changes will not limit the amount that can be accumulated within the superannuation system.
Furthermore, the proposed changes will not require members to withdraw money from their superannuation during their lifetime. Additionally, the tax-free status of eligible superannuation withdrawals from age 60 onwards will remain unchanged.
What has actually been proposed?
Well, during a member’s working years when they make contributions to their superannuation, their balance is held in an “accumulation account”. Currently, earnings on these balances are taxed at a concessional rate of 15%. However, the Government has suggested changing this tax treatment, but solely for members with large balances. In particular, earnings on balances exceeding $3 million will be subject to a 30% tax rate after 1 July 2025, instead of the current 15%.
The end result is that superannuation will continue to be a concessionally taxed vehicle for retirement savings, but for some, it will not be as concessionally taxed as it is now.
Given the lack of detail in the Government’s announcement, it is essential to wait for further clarification before taking any action. Superannuation fund members do not need to do anything right now, as the proposed changes will not come into effect until 1 July 2025, if at all.
In summary, it is crucial to remain informed and updated on any changes to superannuation and related tax rules, but it is equally important to wait for the full details before making any decisions. While the proposed changes may cause anxiety and frustration, it is crucial to keep in mind that they are just that – proposed changes.
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