Proposed tax on superannuation balances

Recent discussions around proposed tax changes on superannuation balances exceeding $3 million could impact your financial future in meaningful ways. Here’s what you need to know to stay ahead.

Understanding the Division 296 Tax Proposal

The government’s proposed changes would introduce an additional 15% tax on earnings tied to superannuation balances above $3 million, effectively raising the concessional tax rate to 30% on these amounts.

Key points to note:

• The $3 Million Threshold: This applies to an individual’s total superannuation balance, not just specific investments or assets held within a super fund.

• Taxation of Gains: Both realised gains (profits from sold assets) and unrealised gains (market value increases of unsold assets) would be subject to tax. This means you could face higher tax bills due to market fluctuations, even if you haven't sold any assets or made cash profits.

What Does This Mean for You?

Superannuation remains a valuable tax-effective strategy, especially if you’re a high-income earner facing a 47% personal tax rate (including the Medicare levy). However, for those with large, appreciating assets like property or investment-grade tools within their super funds, these changes could result in significant tax burdens down the line.

If liquidity is an issue, meaning your assets are growing but you lack cash flow to cover tax obligations, this proposal can add pressure to your financial strategy. Given the complexities, aligning your tax planning with your long-term goals is essential.

What Can You Do to Safeguard Your Wealth?

If your super balance is approaching or exceeding the $3 million mark, being proactive is key to avoiding surprises. Here are some strategies worth discussing with your accountant and financial adviser:

1. Spouse Contributions: Consider splitting super contributions with your spouse to balance individual totals while growing your combined savings.

2. Alternative Investment Structures: Explore wealth management options outside of superannuation to reduce the potential tax impact of Division 296.

3. Asset Allocation Review: Reassess your super portfolio to adjust the mix of assets that may be subject to higher tax levels under the proposed rules.

Why Acting Now Matters

Although the Division 296 tax proposal is still under review, its potential implications on high-balance super accounts demand forward planning. By taking action now, you can put measures in place to reduce tax liabilities and protect your financial position for the future.

Don’t wait for changes to catch you off guard; work with your accountant or adviser today to navigate these complexities and build a resilient financial foundation that supports both your business and personal goals.

Stay informed, stay prepared, and take control of your financial future.

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Anthony Mazza

Director