Treasury warns of possible ‘unintended consequences’ in super tax hit
Treasury has flagged the potential for “unintended consequences” from the government’s proposed $2bn hit to tax concessions on $3m-plus super balances.
Treasury has flagged the potential for “unintended consequences” from the government’s proposed $2bn hit to tax concessions on $3m-plus super balances, as it promised to “consult closely” with the industry on how best to treat defined benefit funds.
Jim Chalmers on February 28 announced a plan that from mid-2025 would limit tax concessions on earnings generated on balances above the $3m threshold, in a move that in its first year would affect 80,000 individuals, or some 0.5 per cent of savers.
For those affected by the changes, the earnings would be calculated as the difference between their total superannuation balance (TSB) in one year versus the next, adjusted for withdrawals and contributions, the Treasury document said.
Industry experts have raised concerns that including notional capital gains when measuring taxable earnings for individuals with very large retirement savings was out of step with the rest of the personal tax system, and in the worst case could force savers to sell some assets to meet liabilities.
The Treasury paper downplayed these concerns, putting the onus on fund trustees to comply with regulatory rules that covered the “expected cash flow requirements and the ability of the fund to discharge existing and prospective liabilities”.
Nonetheless, the paper said when it came to calculating an individual’s super earnings, “some modifications to these inputs may be required for the purposes of calculating earnings where the reliance on the TSB in specific circumstances generates unintended outcomes”.
The planned changes will bring the headline tax rate to 30 per cent, from 15 per cent, for earnings corresponding to the proportion of an individual’s superannuation balance that is greater than $3m.
“The starting point for the earnings calculation is the difference between the TSB at the end of the financial year and the TSB from the financial year prior,” the paper says.
“The change over this period may be either positive or negative depending on the earnings generated by the fund, including all notional gains and losses.”
Losses, as measured under the proposed formula, in any given year could offset future earnings, Treasury noted.
The paper identifies “broadly two key areas” that needed to be addressed for defined benefit funds.
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