| In advance of the 2023–24 Federal Budget, a Treasury consultation paper has generated a national discussion regarding the role, purpose, and access to superannuation. The exposure draft legislation has already been released. |
What does superannuation represent? Legislating the purpose of Superannuation, a Treasury consultation that was made public in February, seemed unimportant at first. The consultation aims to tie future superannuation policy to a specified legislative goal:
The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside Government support, in an equitable and sustainable way.
However, what would seem obvious has unleashed a can of worms of what superannuation is not. By default, superannuation is not a way to build wealth in a low-tax economy if its purpose is to “preserve savings,” which entails reserving access to superannuation accounts until retirement only. It is not a plan for handling money passed down through generations. The definition would also stop programmes like the COVID-19 early access plan, which was frequently used during the epidemic to give persons in need of immediate cash access ($37.8 billion was withdrawn from superannuation funds by almost 3 million people). Additionally, it is not a way to buy a house more quickly.
As a side note, the Treasurer notes that the average super amount in Australia is $150,000 when accounting for everyone with a super balance, including recent college graduates. All income levels included, the average balance for people 65 and above is roughly $400,000.
The Treasury has released the exposure draft legislation for discussion to implement the Government’s proposal to apply a 30% tax on future superannuation fund earnings when the member’s total superannuation balance is above $3m. This is a fairly short turnaround from announcement to draft legislation.
The government’s intentions are confirmed in the draft legislation to::
• Beginning on July 1, 2025, (not indexed), impose the tax on member accounts with superannuation balances above $3 million; and
• ‘Unrealised gains’ are subject to an extra 15% tax. If the value of the assets increases, a tax liability will result.
National building and superannuation
Nation building is the second part of the Treasury consultation. In a speech recently, the Treasurer said, “to my mind, defining super’s task as delivering income for retirement isn’t to narrow super’s role in our economy…it’s to elevate it, and broaden it.” The consultation states:
“There is a significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long‑term investment horizon of superannuation funds.”
At a rate of 3% when it was first implemented in 1992, the mandatory superannuation guarantee (SG) will increase to 12% as of July 1st, 2025. The superannuation pool in Australia has increased from $148 billion in 1992 to more than $3.3 trillion now. It currently accounts for 139.6% of the GDP and is anticipated to reach about 244% of GDP by June 30th, 2061. Australia’s pension asset pool is currently among the largest in the world and ranks fourth in the OECD. The consultation does not define how “leveraging greater superannuation investment” would be achieved.
*The Treasurer has disqualified any modifications to the current early access hardship rules for super.
Super Balance Increase come 1 July 2023, but Contributions Remain the Same
On July 1, 2023, the general transfer balance cap (TBC), which is the maximum amount you may have in a tax-free retirement account, will rise by $200,000 to $1.9 million. Each December, the TBC is adjusted to the consumer price index.
The TBC is applicable per person. Your transfer balance balance (TBC) after July 1, 2023, will remain at $1.7 million if it ever reached $1.7 million or greater. Your cap is proportionally increased based on the highest balance your transfer balance account ever achieved if the maximum balance in your account was between $1 and $1.7 million.
In other words, the ATO will compare the current balance of your transfer balance account to its highest previous value before applying indexation on the remaining cap amount.
For instance, if the highest point your account reached prior to 1 July 2023 was when you started a retirement income stream valued at $1,275,000 on 1 October 2022, your unused ceiling would be $425,000 ($1.7m-$1.275m). Your unused cap percentage is calculated using this unused cap amount ($425k/$1.7m=25%). The indexation increase ($200k*25%=$50k) is then added to the unused cap percentage to produce your new TBC of $1,750,000.
But don’t worry, you can view your personal transfer balance cap, available cap space, and transfer balance account transactions online using the ATO link in myGov, so you won’t have to compute this yourself.
The maximum contributions you may make to your superannuation, however, will not change. That is, $27,500 for contributions with restrictions and $110,00 for contributions without restrictions. The contribution ceilings are determined by the AWOTE (average weekly ordinary time earnings) numbers from December.
Future income for super balances over $3 million will be taxed at 30% starting in 2025.
The 15% concessional tax rate that is currently applied to future earnings for superannuation accounts exceeding $3 million will be increased to 30% starting in 2025–26, according to a government announcement.
In the accumulation phase, the concessional tax rate on superannuation earnings will stay at 15% up to $3 million. The rate will escalate to 30% at $3 million and above. The modification is not retrospective, it will only apply to future earnings;
The measure is anticipated to have an effect on 80,000 people.
The transfer balance cap and the maximum amount a member may have during the tax-free retirement period are not subject to any proposed adjustments in the announcement.
If you’d like to discuss your Self-Managed Super Fund (SMSF) with an accountant based locally in Ormeau, or your superannuation and tax needs in general, get in touch with MB Accounting and business services, your local Ormeau Accountant and we’ll help you with your tax today.