Tax hike on super balances above $3 million: Is it time to rethink our retirement savings vehicles?

Another year and yet another announcement from the Australian government on intended changes to our superannuation system! No wonder the overall confidence with the retirement savings incentives in Australia continues to decline.

A quick look at the proposed changes

Commencing 1 July 2025, the tax rate levied on super fund earnings for members with balances above $3 million will double from 15% to 30%.

Some of the key points to note with these proposals include:

• The proposed changes are not designed to apply a specific limit on super fund account balances. They are designed to apply a higher rate of tax on fund earnings for balances above $3 million. 
• The higher tax rate applies to future earnings from 1 July 2025 and it will not be retrospective. However, there may be a “retrospective” effect for super funds carrying existing unrealised capital gains on fund assets.
• The $3 million cap is applied per member and not per fund.
• The proposed increase in tax payable only applies on earnings above the $3 million threshold.
• The $3 million threshold will not be indexed for inflation, so more people will be subject to the 30% tax rate over time as super balances increase.

Although these proposed changes apply to most superannuation fund types, they will have a much greater effect on the members of SMSF’s due to their higher average member balances and the investments held within these funds.