The federal government has delayed introducing a significant superannuation bill that it had been planning to legislate before 2024 ends, due to concerns that it will not pass the Senate. The bill is now scheduled for further Senate discussion in early February 2025, however there is a chance that the current federal parliament may not sit again due to an election being called in early 2025.
If passed, the Better Targeted Superannuation Concessions Bill will increase the tax rates on superannuation earnings for individuals with super balances in excess of $3 million from 1 July 2025. The tax rate on earnings will increase from 15% to 30% under the proposed legislation, along with unrealised capital gains on assets in super accounts with balances in excess of $3 million.
Besides the increase to the super tax rate, the proposed legislation is a significant change in that it would result in affected individuals being forced to pay tax on assets they still own, not when they have been sold as has traditionally been the case. In other words, a tax on unrealised capital gains of unsold assets, as opposed to the usual capital gains tax (CGT) on asset sales.
Australians with self-managed super fund (SMSF) assets like property or farms would likely be one of the major impact groups if the proposed legislation is passed. The federal government estimates that the proposed superannuation changes would affect 80,000 Australian superannuation account holders if passed (i.e., those with balances exceeding $3 million).
Why has the government delayed the $3 million super balance tax changes?
The federal government’s legislation was unlikely to be passed by the Senate in 2024 as the Coalition, the Greens and several independent crossbench senators had all indicated their opposition to it. The Coalition rejected the proposal when it was first announced by the federal Labor government in early 2023.
However, the Greens believe that Labor’s increased tax rate proposal for high super balances did not go far enough. They indicated their support for a lower threshold super balance for the increased rate to apply (a $1.9 million total superannuation, balance rather than a $3 million balance). The federal Labor government was not willing to negotiate a compromise with the Greens to garner their support for the superannuation tax changes. The lower threshold advocated by the Greens would impact an estimated 104,000 Australian superannuation account holders.
Other independent crossbench senators have indicated that they oppose the taxing of unrealised capital gains that is a key component of the proposed legislation.
Will the proposed $3 million super tax changes still be implemented?
This will depend on whether there is parliamentary vote on the proposed legislation before the next federal election, which seems increasingly unlikely. However, if it is passed, it could still be implemented on July 1, 2025.
If not, it will depend on whether the Labor government is re-elected and whether the proposed legislation is retained in its current form and approved by federal parliament sometime shortly after the election. The timing of the implementation may be affected by such a delay, even if the legislation is passed.
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