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Further insights into the $3 million superannuation threshold

As you are aware, last week, I wrote to you about the Government’s proposal to double the concessional tax rate for super balances exceeding $3 million, from 15% to 30%, effective 1 July 2025. Since then, I have received a number of responses from you. Thank you and given more research for this week’s article, I will be expecting even more responses. Please read on.

Since then, more has come to light, which has compelled me to write to you, including the release of Treasury’s own analysis and the Financial Services Council’s (FSC) own analysis.

The Government has made the claim that this change would only impact 0.5% of superannuation accounts, or roughly 80,000 Australians, which at the time surprised me as I thought this was very understated. The FSC’s analysis found approximately 500,000 superannuation balances could be hit with a 30% concessional tax rate — six times higher than the government’s estimates. The $3 million cap is intentionally not indexed, meaning it will capture many more Australians including 204,000 Australians under the age of 30 who will fall into this threshold. FSC modelling demonstrates:

  • A 25-year-old IT professional earning $100,000 with a current superannuation balance of $35,000 would reach the $3 million threshold by the time they retire at age 65.
  • A 45-year-old school principal earning $150,000 today with a current superannuation balance of $650,000 would reach the $3 million threshold by the time they retire at age 65.

A 55-year-old dentist earning $220,000 today with a current superannuation balance of $1,400,000 would reach the $3 million threshold by the time they retire at age 65.

Further, we have inflation currently at 7.8% and there is a strong possibility inflation may continue to run for some more years at 4%. This seriously erodes the $3 million cap and its capacity to produce the required retirement income given real investment returns after inflation may only be 1 or 2%, assuming a 6% total investment return and 4% inflation and investment costs.

Two weeks ago, when this idea was first floated, the threshold was mooted to be $5 million and that seemed to be the Government and Industry’s consensus. Last weekend they announced $ 3million as the threshold and as the proposed policy. It seems like a lot of discussion has occurred behind closed doors over that weekend.

The second concern and a major one is the proposed inclusion of all unrealized gains and losses as part of the calculation of an individual’s earnings for tax assessments. This has not been done before in the tax landscape. The Government is seeking to apply capital gains tax on an asset before it has been sold and the profit actually realized.

Many superannuation trustees invest in assets for the long term. Often these assets are unlisted such as private equity or physical property. Many of our Business owners operate their businesses out of commercial or industrial premises owned by their superannuation fund. In some cases, these assets can stay dormant for a number of years and then suddenly revalue. Applying a 30% tax on the notional rise of a commercial property would lead to unintended and unjustified consequences ie the Trustees don’t have the monies to pay the tax and have to sell their commercial or industrial property to pay the tax.

I am not opposed to the imposition of a threshold on concessionally taxed super assets. But I am opposed to the $3 million threshold. It was always too low and add to it the non-indexing and we have allowed another stealth tax to be created.

I opposed the franking credit tax some years ago and I see this is also being revisited by the Government, (they are launching legislation in Parliament as we speak). By the way, the greatest beneficiaries of franking credits are retirees over the age of 75!

Further, I am surprised that the Government has not learned that piecemeal policy changes by previous Governments create a patch work quilt effect is not a calculated and mature approach to the serious business of reconstructing a Retirement Incomes Policy which so many Australians depend upon.

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