Proposed $3m Super Tax – Updates and Thoughts post the Federal Election

Following the recent Federal Election resulting in a continuing Labor Government, we expect the proposed tax on larger super balances will once again be put under the spotlight.

Whilst we are currently waiting on the final Senate composition, it is possible the proposed new tax on superannuation will be pushed through by Labor with support of the Greens. At this stage it appears unlikely Labor will need the support of the independents if they can do a deal with the Greens.

The timing of when any resulting legislation will commence is also unknown. It was previously proposed to commence on 1 July 2025. If the legislation does pass the houses unchanged and the start date remains at 1 July 2025, you will still have time to take any necessary actions as the first assessments of the proposed Division 296 tax will not be issued until after 1 July 2026.

A quick summary of the proposed measures

• Tax will be assessed to an individual for the annual growth (both realised and unrealised) where their adjusted combined superannuation balances have exceeded $3m at the end of the financial year
• The additional tax rate applied will be 15% and the tax can be paid personally or from the super fund
• Tax will be levied on unrealised capital gains
• Income and realised capital gains are still subject to the 15% income tax (10% for assets held longer than 12 months) on accumulation accounts within the super fund
• If your pension balance is above $3m, you will effectively be paying tax on what should be tax free monies
• There is no credit or refund for Division 296 tax previously paid if your superannuation balance reduces in value from one year to the next
• Assets used to fund superannuation contributions have already been subject to tax, either within the superannuation fund (concessional contributions) or outside superannuation (non-concessional contributions)

Understand the characteristics of the assets within your superannuation fund

It may make economic sense for you to withdraw assets from the superannuation fund to reduce your superannuation balance at or below $3m by 30 June 2026 if the overall tax rate will be less outside of the superannuation environment. This is not a “one size fits all”, careful consideration needs to be given before reducing your balance.

The tax applies to individuals, not the super fund as a whole, so you will need to review your personal member balances of all your super funds, if you have more than one super account. Other members of your super fund may not have a balance over $3m and therefore this tax will not apply to them.

A review of your 30th of June 2025 (or 30 June 2024 if 2025 is not yet available) superannuation accounts will help you understand:

1. The value of assets that you may need to withdraw;
2. How you might transfer these assets out of the Fund;
3. What will be the likely tax impact of withdrawing those assets;
4. What structure you are going to use, to reinvest those assets; and
5. What the tax characteristics will be of the assets left behind in your superannuation fund.
6. What is the current amount of the death benefit tax payment to non-dependants if it is not drawn from your member’s balance prior to death or provided to a spouse on death (this is 15% of the taxable component of your member balance found on your member statement)

It is important that you understand the Capital Gains Tax cost base of the assets within your superannuation fund and their current market value to determine what the current unrealised capital gain position is. Moving assets out of the superannuation system will realise these currently unrealised capital gains.

Non-liquid interests in unlisted entities such as unit trusts might take some time to transfer from your superannuation fund. Property interests are more time-consuming to transfer and will need to have the stamp duty implications of such a transfer considered.

Ensuring market values are up to date and correct will be key to ensuring there are no compliance issues.

Unlisted assets will require a valuation that is fair and reasonable, supported by objective and supportable data and considers all relevant factors and considerations that would affect the value of the asset. In most cases, these should be completed by independent valuers.

When dealing with related party sales, you must ensure that you act on an arm’s length basis i.e. the sale price must be what would be reasonably expected if you were transacting with an unrelated party.

Consider the asset succession implications of transferring assets out of your superannuation fund

It is possible that the income tax burden on the income derived from the assets greater than $3m post 30 June 2025 could be lower if they are held outside the superannuation system both during your lifetime and on your death.

Whilst the decision to withdraw the assets over $3m from superannuation might make immediate economic sense, it is critical that thought is put into the structure that those assets are reinvested into. Keeping in mind the superannuation specific rules that are triggered on death in relation to withdrawing balances.

The introduction of the Division 296 Tax is forcing taxpayers to accelerating action that would have been required on your passing. It is important that you revisit your current asset succession strategy to understand how it deals with the assets from your superannuation fund and if the implications of Division 296 changes your intentions.

What can you do now

On the basis the legislation passes both Houses of Parliament unchanged we have 12 months to prepare your group for the impending impact of these changes. We recommend considering now what action you may take if the legislation passes and prepare for the potential transition of your assets out of the superannuation system.

We will be in touch with you again once the legislation has passed to help you start to consider the actions that you may want to take to prepare your group and update your financial strategy to minimise the impact of these laws.

We're here to help

Get in touch for more insights or direct support - we are here to help. You can also find news, webinars and resources online, and contact us on (02) 8999 1199 for all your tax, accounting and advisory needs.