28 November 2024
As Australia edges closer to a federal election, the likelihood of the proposed changes to tax superannuation on balances exceeding $3 million being passed in the current Parliament has significantly diminished. However, the possibility of the legislation resurfacing early next year cannot be ruled out entirely, keeping the industry and affected individuals in a state of uncertainty.
Refer to our past newsletter The $3 Million Superannuation Tax that outlines the background to these proposed changes.
A Temporary Reprieve
The Government’s plan to increase the tax rate from 15% to up to 30% on earnings related to super balances above $3 million has faced strong resistance. Since the Bill was introduced 12 months ago, key objections have come from the Senate crossbench, industry representatives, and concerned Australians. The proposal to tax unrealised capital gains has been particularly contentious, with critics labelling it unfair and impractical—especially for farmers and retirees who might lack the liquidity in their super to pay such taxes.
For now, the Bill has been left out of this year’s legislative priorities, reflecting the Government’s struggles to secure enough support in the Senate. While this delay offers temporary relief, the Government’s commitment to the policy suggests it could feature prominently in the upcoming election campaign or be tabled when Parliament reconvenes next year, potentially up for it to be debated in Parliament’s February sitting. The political and practical implications of this proposal remain significant and unresolved. Even a delayed implementation could strain superannuation funds and individuals trying to adapt to the complex changes, as well as the Regulator scrambling to implement within the required timeframes.
Election Implications
If the Government chooses to take this measure to the next election, it could become a critical issue. The tax has already drawn parallels to controversial policies of the past, such as the franking credits proposal, which played a role in Labor’s 2019 election defeat. Critics argue that the perceived inequities from the proposed change to the superannuation tax could lead to a similar political fallout.
Responding to the Key Concerns
The opposition to the legislation stems from two primary areas:
- Unrealised Gains: Taxing paper profits poses challenges for funds without liquidity to meet its tax obligations.
- Threshold Indexing: The refusal to index the $3 million threshold means more members could be affected over time due to inflation.
Next Steps
Treasury’s approach to these concerns will be closely monitored. The delay potentially will now see the proposed changes remain as an election battleground. With various political players and stakeholders weighing in, it’s clear this issue is still unresolved.
In the meantime, it would be sensible to table a deferral of the tax start date from 1 July 2025 to at least 1 July 2026 to allow superannuation funds and the Regulator sufficient preparation time.
We will keep you informed of any future developments in the New Year, but for now, with the uncertainty surrounding this proposal, there is no immediate need to make changes to your superannuation arrangements.
This newsletter is current as of 28 November 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Cooper Partners Financial Services Pty Ltd AFSL 000 327 033
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