TAX ON SUPER BALANCES ABOVE $3 MILLION
In a very quick turnaround from announcement to draft legislation, Treasury has released the exposure draft legislation for consultation to enact the Government’s intention to impose a 30% tax on future superannuation fund earnings where the member’s total superannuation balance is above $3 million from 2025-2026.
The draft legislation confirms the Government’s intention to:
- Impose the tax on member accounts with superannuation balances above $3 million from 1 July 2025 (not indexed); and
- Apply the additional 15% tax to ‘unrealised gains’. This will mean that a tax liability will arise if the value of the assets goes up.
TRANSFER BALANCE INCREASE BUT NO CHANGE FOR CONTRIBUTION ON 1 JULY 2023
The transfer balance cap (TBC) will increase by $200,000 on 1 July 2023 from $1.7million to $1.9million.
The TBC is indexed to the consumer price index each December, and in December 2022 inflation soared to 7.8% triggering the increase.
Individuals commencing a retirement income stream from 1 July 2023 will benefit from the higher $1.9million cap.
For any clients considering retirement, either fully or partially, consider deferring until July to take advantage of the extra tax-free $200,000.
For individuals already with pension accounts, their TBC will increase by an indexation amount. The indexation is based on the highest ever balance in the individual’s transfer balance account, which is used to calculate a proportional increase in their transfer balance cap. This means those individuals will have a personal TBC between $1.6 million (the previous cap before it was increased to $1.7million) and $1.9million.
For example, if a client started a retirement income stream valued at $1,275,000 on 1 October 2022 and this was the highest point their account reached before 1 July 2023, then their unused cap is $425,000 ($1.7million-$1.275million). This unused cap amount is used to work out your unused cap percentage ($425k/$1.7million=25%). The unused cap percentage is then applied to the indexation increase ($200k*25%=$50k) to create your new TBC of $1,750,000.
A client’s personal transfer balance cap, available cap space, and transfer balance account transactions are available to them online through the ATO link in myGov. For tax agents, the information is accessible through the ATO portal.