Following the Government’s announcement on 28 February 2023 regarding a reduction in tax concessions for superannuation balances over $3 million, we discuss what has changed in the past 12 months and what the future may hold.

The Objective of Superannuation

The Government released a consultation paper on 20 February 2023, proposing to legislate the objective of superannuation. In short, they have proposed “the objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

Additionally, “the objective would be forward looking and could be used as a common yardstick to consider prospective policy changes to the superannuation system.” 

Pre-Budget Announcement

Reduction in Tax Concessions for Superannuation Balances over $3 million

Prime Minister Anthony Albanese announced on 28 February 2023 that earnings on superannuation balances above $3 million will be taxed at 30%, rather than the current concessional tax rate of 15%.

This measure is proposed to take effect from 1 July 2025 and will apply to superannuation earnings from this date (not retrospective).

In a joint media release, Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones stated:

“This is expected to apply to around 80,000 people, and they will continue to benefit from more generous tax breaks on earnings from the $3 million below the threshold.”

This implies the 30% tax rate will apply only to earnings on the excess above the $3 million threshold. 

As always, the devil will be in the detail. No guidance has been provided on how the tax change will be implemented, and the implications for people with multiple superannuation accounts or balances in both accumulation and pension phase.

The media release also confirmed a withdrawal of superannuation money will not be required, stating “this adjustment does not impose a limit on the size of superannuation account balances in the accumulation phase.”

We now wait in anticipation for the enabling legislation.

What has changed over the past 12 months?

1. Indexation of the total super balance

CPI figures released in January 2023 mean the general Transfer Balance Cap (TBC) will increase from $1.7 million to $1.9 million from 1 July 2023. 

The general TBC is used as the threshold to determine your eligibility to make non-concessional contributions. The general TBC is also a limit on the amount of superannuation that can be transferred into retirement phase. 

However, due to the proportional indexation approach, your personal TBC may increase by the full $200,000 (if not in retirement phase) or not at all (if you have already utilised all your TBC). The ATO calculates your personal transfer cap and is available through your myGOV account.

2. Removal of the Work Test 

From 1 July 2022, individuals under the age of 75 are eligible to make super contributions without the requirement to meet the work test. The work test means you work at least 40 hours over a 30-day period in the relevant financial year.

The removal has given many individuals another opportunity to contribute to super – namely individuals 67 years and over and retired.

The work test requirement remains for those aged between 67 and 74 for personal deductible contributions.

3. Removing the $450 threshold for super contributions

The $450 per month earnings threshold for superannuation contributions was removed on 1 July 2022. Employers are now required to pay the superannuation guarantee on all wages of employees’ earning less than $450 per month. Individuals under 18 years old must still work at least 30 hours per week before an employer must pay super guarantee contributions.

4. Downsizer contributions

From 1 January 2023, individuals aged 55 and over can now access the downsizer contribution measures. This measure allows individuals who sell their home to make a one-off, $300,000 contribution to their super. The contributions do not count towards the other contribution caps but certain eligibility criteria do apply. 

Other possible changes

1. Review of Division 293 Tax Concessions

Currently, superannuation contributions made by employers or by individuals claiming a tax deduction are taxed at a lower rate than the personal income tax rate. This means extra contributions to superannuation allow individuals to boost their retirement savings and also reduce their personal tax payable.

A pre-budget submission by The Association of Superannuation Funds of Australia Limited (ASFA) recommended Division 293 tax threshold is reduced from $250,000 to $200,000. Division 293 tax is an additional 15% tax on contributions if an individual exceeds the Division 293 tax threshold. The reasoning for the $200,000 threshold was to align with the top personal tax rate of $180,000 and a further allowance of $20,000 for superannuation contributions.

However, late last week, when asked about possible changes to Division 293 tax, Treasurer Dr Jim Chalmers noted a change is “not on the table.”

2. Tightening of the early access to superannuation

Assistant Treasurer Stephen Jones said restricting early access to funds is "fundamental" as it supported retirement incomes, at a speech to the Self-Managed Super Fund Association last week.

Currently, individuals can access a portion of superannuation on compassionate grounds including medical treatment and home loan repayments to prevent a person losing their home.

It has been reported in the last four years, the number of people accessing super early to pay medical costs has jumped from less than 23,000 to more than 30,000 per year.

Further, Treasury has now released further details on the earnings tax calculation for high balance funds.

Please contact us to discuss further how these superannuation changes will impact you. 


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