Proposed tax on superannuation balances

The ins and outs of the proposed tax on high superannuation balances.

What is all the fuss about?

The proposed Division 296 tax legislation can potentially affect many clients with high superannuation balances. Assuming the Bill passes, and depending on your super balance, you may need to review your super, investment, tax, and estate planning strategies.

How will the tax work?

Division 296 is a proposed 15% tax on the earnings attributed to superannuation balances over $3 million. It applies to the existing 15% tax on concessional earnings within the fund. This means affected individuals could be taxed at a combined rate of up to 30% on some of their super earnings.

Notably, the calculation may include realised and unrealised gains, which have sparked most of the debate.

Is it as bad as people say?

Even with the proposed extra 15% tax on earnings, superannuation can still be a smart choice for high-income earners, who are often personally taxed at 47% (including the Medicare levy).

However, if unrealised gains are taxed and you have assets (e.g. property) that increase in value a lot, you may be faced with an unwelcome tax burden.

Is there anything I can do?

The first step is to seek advice and assess your current position. You may need to consider some strategies.

• Split the super with your spouse. For example, spouse splitting contributions, withdrawal of super from the higher balance spouse and contributions to the lower balance spouse. 

• Explore options like investment bonds, family trusts or corporate beneficiaries as an alternative to super.

• For SMSFs, if you are asset-rich but income/cash-poor, you may need to consider your mix of assets going forward.

Let's talk

Tim Goode

Managing Director | Ignite Accountants