Navigating the Proposed Super Tax

As someone in the construction industry, you're focused on growing your wealth while managing the hard work that keeps your projects on track. That’s why recent talks about proposed tax changes to superannuation balances over $3 million might matter to you. Here’s a breakdown of what’s happening and how it could affect your financial future.

What’s Behind the Division 296 Tax Proposal?

The proposed changes introduce an additional 15% tax on earnings tied to super balances over $3 million. This increases the tax rate on concessional earnings from 15% to 30% for amounts exceeding this threshold.

It’s important to know that the $3 million limit applies to each individual’s total super balance, not the value of specific investments or assets held within a super fund.

The big sticking point here is how earnings will be calculated. The legislation proposes taxing both realised gains (profits from sold assets) and unrealised gains (increased market value of assets you haven’t sold yet). For business owners, this could mean unexpected tax bills based on market fluctuations, even when you're not making cash at the moment.

What Does This Mean for you?

Superannuation is still a useful tax strategy for high-income earners, especially if your personal tax rate is 47% (including the Medicare levy). That said, if your super balance includes growing assets like property under construction or investment-grade tools, you might face higher tax liabilities if this proposal goes ahead.

For those who have large, appreciating assets in their super fund but lack liquidity (cash flow) to cover these tax bills, this could create financial strain. Understanding how these changes tie into your overall tax plan is critical, especially if your work heavily involves property development or long-term projects.

What Can You Do to Protect Your Position?

If your super balance is over $3 million, or you’re getting close, now is the time to act. Consulting your accountant and financial adviser will help you stay ahead. Here are a few strategies to explore:

• Spouse Contributions: Splitting super contributions between yourself and your spouse can help reduce individual balances while growing savings evenly.

• Alternative Investment Structures: Your accountant can help identify different vehicles or strategies for managing your wealth outside of superannuation to lessen the impact of this tax.

• Asset Allocation Review: Look at the types of assets in your super portfolio. Adjusting your mix can limit exposure to higher tax liabilities under the new rules.

Why You Need to Act Now

While the Division 296 tax proposal is still under review, its potential impact on high-balance super accounts underscores the importance of planning ahead. Individuals who take a proactive approach now can mitigate tax surprises and build a solid financial foundation for the years ahead.

At Ignite Accountants, we are experts in helping the construction industry. Reach out to us today to talk about how these changes might affect your business and your super.

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Tim Goode

Managing Director | Ignite Accountants

Note: This information is general in nature and should not be considered financial advice. Consult a licensed financial planner or a qualified accountant for advice tailored to your circumstances.