Commencing 30 June 2025
The Federal Government has announced its proposed new policy on the taxation of super fund individual member balance over a $3M cap. Obviously this is contrary to their pre-election statements and is a complete change to how income and capital gains are taxed in Australia. In short, a SMSF is taxed on income earned during the year as well as capital gains realised and concessional contributions received. Taxation is paid depending on whether the member’s balance is in the accumulation phase of super @ 15% or the pension phase which is taxed @ 0%.
This proposed new law will treat the growth in a member’s balance, over $3M as earnings which are then taxed individually at 15%.
Treasury has provided the following example:
Warren is 52 with $4 million in superannuation on 30 June 2025. He makes no contributions or withdrawals. By 30 June 2026 his balance has grown to $4.5 million.
This means Warrens calculated earnings are: $4.5 million – $4 million = $500,000
His proportion of earnings corresponding to funds above $3 million is: ($4.5 million – $3 million) ÷ $4.5 million = 33% – Therefore, his tax liability for 2025-26 is: 15% × $500,000 × 33% = $24,750
The $500,000 is not income derived or capital gains realised – it is unrealised growth and accrued income. This is a major departure from existing tax policy and not in line with the current taxation law. This will all add to the administration requirements for the following reasons:
- All assets will need to be properly valued at the start and end of each year,
- Negative earnings can be carried forward each year meaning a separate set of accounts,
- The member’s balance up to $3m will be taxed as normal so we will have two methods of taxing a member’s balance if they exceed the $3m cap.
When you look at this $3m Cap threshold, like all other tax thresholds they have tended to be reduced over time, so it shouldn’t surprise us if this $3m cap become lower at some time in the future.
If you have any questions please do not hesitate to contact us (click here).