Additional Tax on SMSFs with Balances Over $3 Million

The federal government has recently announced an increase to the tax rate for individuals who have superannuation balances over $3 million.  In this article we cover the short and long-term implications for self-managed super funds (SMSFs).

How much is the tax rate increasing?

The tax rate on super fund contributions and earnings for people with balances exceeding $3 million will increase from the current concessional rate of 15% to 30%.

This rate is slightly lower than the 32.5% marginal tax rate for people with a taxable income between $45,000 and $120,000, and still significantly lower than higher income tax brackets.

When will the tax rate increase?

The increase is intended to  take effect from 1 July 2025. This means it will happen after the next scheduled federal election, so there is some chance that this decision may be overturned by the coalition if there is a change of government. Opposition leader Peter Dutton has already flagged that the coalition will reverse the Labor government’s decision.

Will the tax increase be retrospective?

The increase will not be retrospectively applied. It will only be applied to super fund contributions and earnings from 1 July 2025 provided that the federal government retains power at the next election.

Will the $3 million threshold be indexed for inflation?

The $3 million threshold will not be indexed for inflation and if this does not happen, more and more Australians will be exposed to the higher tax rate in the future, especially if Australia’s current high inflation rate continues over the medium to long term.

How many people will be affected by the increase?

Over the coming decades, more than 500,000 Australians are likely to pay the federal government’s proposed superannuation tax increase.

That number will grow over time due to the threshold not being indexed for inflation, in much the same way as ‘bracket creep’ results in Australians paying higher taxes over time due to marginal tax brackets being similarly fixed.

Will there be any further changes to super rules?

The federal government has indicated that there will be no further changes to super rules announced during their first term of government. 

However, the opposition has pointed out that Labor went to the last election with a policy not to make any changes to super. Prime Minister Anthony Albanese and Treasurer Jim Chalmers have pointed out that while they have announced a change, it will not take effect until after the next election, so they do not believe they have broken any pre-election promises.

What should you do?

If you have a super balance in excess of $3 million (or you will be approaching that figure in the next few years), then it is best to seek independent, professional advice about your most tax-effective strategies. At Wilson Pateras, we have expert SMSF, tax planning and retirement planning advisors who can provide you with the right advice.

Contact us today to find out how we can help you.

This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation. 

Share this blog post on:

Share on facebook
Share on twitter
Share on linkedin
Share on email