On 31 March Treasury released the consultation paper outlining the approach intended to be adopted when implementing the new tax for individuals with a Total Superannuation Balance (“TSB”) in excess of $3 million.
What we know so far
The consultation paper is an extension of the prior announcements and confirms the following items:
- The change in law only applies at an individual level such that other members of the same superannuation fund are not impacted with its first application in the 2026 income year (ie with effect from 1 July 2025);
- The new tax of 15% will apply to the proportional earnings on balances in excess of $3m and is payable by the individual. There are no deductions, offsets or credits proposed to be applied against this tax liability.
- The $3m threshold is not to be indexed and therefore over time will mean that its application will be wider than currently stated;
- The TSB is determined by reference to an individuals combined superannuation balances (ie across differing funds and phases);
- The individual (not the fund) is liable and similar to the existing Division 293 tax, the ATO will issue assessments. It is expected that the 2026 assessments will be issued in the first half of 2027; and
- An individual can pay the tax or elect to withdraw it from their fund.
The consultation paper is clear in that “There will be no change to the tax arrangements within superannuation funds”.
This indicates the real possibility for the same income or gains to be taxed twice, once through the existing superannuation mechanisms (eg when income is received or a gain realised on the disposal of an asset) and secondly through the new TSB balance methodology (as this taxes unrealised gains).
It was thought that this issue would be addressed on release of the consultation paper but this does not appear to be the case and therefore an inequitable result appears to arise.
The consultation paper has indicated that trustees are expected to manage the liquidity of the fund to ensure it has adequate cashflow to meet its requirements. This includes discharging existing and prospective liabilities.
In other words, the expectation is that individuals will source the cash required to pay the new tax from the superannuation funds and therefore, the fund will need to have available cashflow.
In practical terms this means that funds with illiquid assets (eg property) will need to determine an appropriate strategy to deal with the cashflow implications. This could include extracting the property from superannuation.
The consultation paper has provided some clarity in relation to how the calculations will be addressed with individuals whose balance moves into and out of the $3m cap. The $3m threshold being utilised in the calculations, rather than actual balances, with a view to ensuring the correct proportion earnings to TSB is taxed.
Submissions on the consultation paper are to be made by 17 April 2023 (a 17 day turn around) through which it is hoped that significant refinement of the approach is undertaken especially in relation to the potential double taxation.
We will continue to keep our clients updated. If you have any questions on how this may impact you, please reach out to your Engagement Partner.