WEEKLY E-MAIL

16 March 2023

CHANGES TO SUPERANNUATION TAXATION ON LARGE BALANCES

By Sam Eley

The Government has recently proposed changes to taxation on large superannuation balances.

Treasurer Jim Chalmers revealed that the tax rate on earnings for individuals with a total super balance (TSB) above $3 million would double from 15% to 30%. The earnings will also include notional (unrealised) capital gains, adding an extra layer of complexity.

How will the tax on earnings be calculated?

Based on the Fact Sheet issued by Treasury, the tax will be calculated based on the increase in individual balances instead of imposing a tax on the super fund.

Using an individual’s TSB, earnings will be calculated using the difference between the TSB at the start and end of consecutive Financial Years, adjusting for any withdrawals and contributions.

Individuals can choose to pay this additional tax personally or from their superannuation.

A summarised calculation provided by the Treasury is as follows:

Examples of how this would work

The following examples are based on the Fact Sheet provided by the Treasury.

Balance exceeding $3 million

Warren is 55 with $4 million in an SMSF as of 30 June 2025 and makes no contributions or withdrawals. By 30 June 2026, his balance has grown to $4.5 million.

Step (A) – Warren’s calculated earnings are $4.5 million – $4 million = $500,000.

Step (B) – His proportion of earnings corresponding to funds above $3 million is ($4.5 million – $3 million) ÷ $4.5 million = 33%

Step (C) – His tax liability for 2025/26 Financial Year is 15% × $500,000 × 33% = $24,750

Calculation of earnings

Sue is 69 and retired. Her SMSF has a balance of $9 million as of 30 June 2025, which grows to $10 million as of 30 June 2026. She draws down $150,000 during the Financial Year and makes no additional contributions to her SMSF.

Step (A) – Sue’s calculated earnings are $10 million – $9 million + $150,000 = $1.15 million

Step (B) – Her proportion of earnings corresponding to funds above $3 million is ($10 million – $3 million) ÷ $10 million = 70%

Step (C) – Her tax liability for the 2025-26 Financial Year is 15% x $1.15 million x 70% = $120,750

Carry forward of earnings loss

Dave is 70 and retired. His SMSF has a balance of $7 million as of 30 June 2025. During the 2025/26 Financial Year, he withdrew $400,000 from his SMSF and made no contributions. On 30 June 2026, his SMSF balance is $6 million.

Step (A) – Dave’s calculated earnings are $6 million – $7 million + $400,000 = -$600,000

Step (B) – His proportion of earnings corresponding to funds above $3 million is ($6 million – $3 million) ÷ $ 6 million = 50%

Step (C) – The earnings loss attributable to the excess balance is ($600,000 x 50%) = $300,000. Dave can carry forward the $300,000 to offset future excess balance earnings.

Fast forward to 30 June 2027, Dave’s SMSF makes earnings on his excess superannuation balance of $650,000. He carries forward the earnings losses attributable to his excess balance at 30 June 2026 of $300,000. This makes him liable to pay the tax on $350,000 of earnings.

His tax liability for the 2026/27 Financial Year is (15% x $350,000 = $52,500)

What should I do?

The proposal is intended to take effect from 1 July 2025. The first additional tax liability notice will be sent in the 2026/27 Financial Year, allowing you to make adjustments if this change impacts you.

This is only a proposal at this stage, and the Government is in consultation to further refine it before legislation is introduced.

Sam Eley
Senior Financial Planner
Authorised Representative No. 1234685

If you have any questions or comments, please email me at sam@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution.  The information here is of a generic nature, and does not take into account your investment objectives or financial needs.  No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

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