Proposed - Better Targeted Super Concessions as a new tax on super (The $3M Cap)

I recently attended a Morgans Lunch where Ulton Wealth Partner Kylie Wright, spoke about the Better Targeted Super Concessions, otherwise known as the $3M Super cap. Kylie explained that the tax will be called a Division 296 tax and will apply an additional 15% tax on earnings on super balances above $3m.  However as always, the devil is in the detail, and Kylie said that “this is in fact a tax on unrealised capital gains.” Kylie quoted Professor Ralf Zurbrugg who said “Taxing unrealised capital gains is a somewhat radical departure from existing tax policy and extremely rare in OECD pension systems.”

Importantly Kylie advised that there is currently draft legislation available, and no decisions should be made until the final legislation is announced. The key points I took away include:

• The changes are set to take effect from 01 July 2025 and were originally unveiled by the Treasurer Dr Chalmers in February before being included in the federal budget in May 2023.
• The Government expects around 80,000 people, or approximately 0.5 per cent of Australians with a super account in the 2025–26 income year, to be impacted. However, based on Ulton’s rural and regional client base, Kylie expects the impacted numbers to be much higher.
• The tax can be paid personally or released from super (even if not retired).
• The tax is based on the change in total super balance (not the actual earnings) for those people with more than $3m in super. The ATO will look at your Total Super Balance (TSB) at the start of the year and the end of the year. The difference less contributions and plus withdrawals added back, will be taxed at 15%.
• The balance of a Limited Recourse Borrowing Arrangement is not included (the Total Super Balance is at a gross level not net).
• There is no indexation of the $3M, meaning many more people will be impacted over time.

If you have a SMSF which has property assets or high growth shares, you should be concerned to understand the impacts of this draft legislation.

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