New rules on super could hit Australians overseas

Questions are mounting over how Treasurer Jim Chalmers will introduce changes tipped for the federal budget, especially in super and housing.

The government has leaked a range of details over new social welfare adjustments. But investors remain in the dark over how the new tax on super accounts above $3m will work or how rent relief plans may come into play.

Though Treasury asked for submissions to a review of the new super tax – a range of issues remain unclear.

There are unanswered questions on how the government will apply its plan for a 15 per cent new tax on amounts over $3m in super (effectively doubling the tax for this band to 30 per cent) as industry figures call out a string of potential problems.

Tax experts have warned that the new tax could hit Australians who live overseas.

DBA Lawyers’ SMSF specialist Daniel Butler told the SMSF Adviser publication the new tax being applied to members with Foreign Super Funds “may deter Australians currently residing overseas returning to Australia as their overseas retirement/pension savings may become subject to the new $3m+ tax that is proposed to apply in Australia from 1 July 2025.

“Indeed, the new 15 per cent tax appears to apply to FSFs even if the member continues to reside overseas, however there is the practical difficulty of collecting such a tax from foreign residents.”

Wealth managers also want to know whether the government will exempt insurance payouts made in special circumstances from the new tax.

The CEO of the SMSF Association, Peter Burgess, suggests: “We would really like to see whether there will be exemptions, such as disability insurance payouts, in the new tax.”

Though the government called for submissions to a Treasury review on the new tax – and the review deadline closed on April 17 – wealth managers are still puzzled over how the new tax will work in practice

Among the residual questions over the measure is whether unrealised losses can be claimed against unrealised gains.

The planned introduction of tax on unrealised asset valuations has been criticised sharply by tax leaders across the market. Under the initial proposal, any unrealised losses related to tax payers in the new $3m-plus band were to be carried forward in a similar manner to Capital Gains Tax treatment. Investors may have to wait until the actual legislation is released before getting a clear view on the changes unless more detail is provided in the budget papers.

Investment professionals will also be looking for official confirmation that the indexation of the current tax cap in super goes through as scheduled. At present there is no tax on super earnings below $1.7m – this cap is due to be indexed on July 1. Industry analysts suggest the current level of inflation means that the cap must move from $1.7 to $1.9m.

Similarly, property investors are keen to hear details on any form of rent “relief” which may be clarified in the budget. A recent meeting of the national cabinet did not appear to make any substantial progress on the supply of stock into the housing market.

The property sector will be searching for any schemes the government has planned for the housing market where rental vacancy rates in the major cities at 1 per cent are causing an unprecedented rental crisis.

The government has already pointed to new changes in the build-to-rent sector, which may improve the supply of accommodation long term.

Meanwhile, the federal government’s proposed $10bn Housing Future Fund, which is meant to underpin 1200 new social or affordable homes in each state annually over the next five years, remains stuck in the senate trying to achieve parliamentary support from the Greens.