Draft legislation released: additional tax on large super balances

As previously foreshadowed in the Government’s 28 February media release and discussed by us here, the controversial Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 was released on October 3 for consultation to enact changes to superannuation tax concessions.

The bill reduces the tax concessions for individuals with a Total Superannuation Balance (TSB) above $3m by imposing an additional 15 per cent tax on a proportion of fund ‘earnings’ under the new Division 296 of the Income Tax Assessment Act 1997.

These earnings are effectively the movement in value of the member’s balance – adjusted for withdrawals and contributions – and includes unrealised gains.

Actual earnings on a total super balance less than $3m will continue to be taxed at the concessional headline rate of 15 per cent within the super fund.

The current draft legislation will place pressure on families who have business property or farmland in their self-managed superannuation fund. As this tax is levied on the individual fund member, they will need to find the cash to fund the additional tax on what may be largely unrealised earnings in their super fund, potentially at a time where these business owners and farmers are already under pressure due to economic conditions.

While they can elect to release the funds from their super fund, in many cases the super fund itself will not have sufficient cashflow to pay the tax, which will result in the family being forced to sell the property, which brings the purpose of superannuation – to fund retirement – into question.

With consultation open until October 18, Grant Thornton will be making a submission to Treasury expressing our views and opposing the taxing of unrealised gains included as part of the Division 296 tax regime.

Should you have any questions relating to your superannuation, or how this draft legislation may impact you, please contact your local superannuation team to discuss.