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Highlights
- New super tax law may encounter challenges in the Senate.
- Proposal impacts accounts with over $3 million, including unrealized gains.
- Potential Senate negotiations could delay or alter the bill's provisions.
The Federal Government’s proposal to impose a new tax on superannuation balances exceeding $3 million is progressing slowly, creating uncertainty as it awaits Senate approval. Set to begin on July 1, 2025, this bill has successfully passed through the House of Representatives but faces potential obstacles in the Senate. With a Federal Election looming next year, stakes are high, and backroom negotiations are anticipated, especially with minor parties that could sway the bill's final outcome.
Central to the controversy is the proposal’s approach of taxing unrealized gains on assets within super funds. Unlike traditional tax structures, which usually apply taxes only after asset sales, this method would tax capital gains based solely on asset valuations. Critics argue that this approach could lead to liquidity issues, especially within self-managed funds holding illiquid assets, such as properties and farms, potentially forcing asset sales to cover the tax.
The bill’s current form also lacks indexation on the $3 million threshold, a concern for many who see it as a potential burden for super accounts that may grow into the taxable range over time due to inflation and investment returns. Furthermore, the tax could apply to gains that are theoretical; it would not be refunded if those gains later diminish, adding to the bill’s complexity.
Public sentiment around this legislation is divided. While there may be limited sympathy for individuals with super balances above $3 million, even financial experts have noted that the bill’s structure is both intricate and flawed. Minor parties may support the idea of taxing substantial super balances but might demand changes to simplify or adjust the bill’s design. Some independents may also point to the bill's flaws as justification for withholding support to protect wealthier constituents within their electorates.
For those affected, there is still time to consider options. Although the tax technically takes effect at the start of the financial year, its assessment will not occur until July 30, 2026, giving people a buffer to evaluate and implement potential strategies. Superannuation experts suggest that for many individuals, maintaining their current balance and avoiding unnecessary asset sales may be advantageous, particularly if selling assets would lead to significant capital gains within the fund. Additionally, the potential of a so-called "super death tax" could influence decisions on withdrawals, as it might reduce future tax liabilities for non-dependent children.
In the meantime, those with large super balances are advised to stay informed as the bill develops, ensuring they understand how it might impact them, while considering professional advice to best address personal circumstances.
