SUPERANNUATION $3 MILLION DOLLAR RULE – What is happening?

Matt Richardson • August 13, 2024

In June 2023 I wrote a blog article in relation to Labor’s proposal to introduce a new 15% tax on the superannuation savings of taxpayers with balances over $3.0m.

This tax, if and when it becomes law, will be known as Division 296 tax.

In short, an extra 15% tax will apply on earnings on the proportion of a taxpayer’s superannuation balance above $3.0m.

This tax will be introduced from 1 July 2025 and will be measured against taxpayer’s who have Total Superannuation Balances of $3 million on 30 June 2026.

Labor introduced the legislation to Parliament earlier in the year, hoping to have it finalised as law prior to 30 June 2024.  At the date of writing, it is still not law!

The contentious issue with the drafting of the legislation is the definition of earnings.

Currently, the proposed legislation effectively defines “earnings” as a change in a member’s account balance. This will result in the proposed tax applying to movements in asset values, or unrealised capital gains !

As I wrote in my Blog 14 months ago, if you are having to pay tax on an unrealised capital gain, you will have to find the cash from somewhere to pay the tax!

Many of our Self-Managed Superannuation Funds (SMSFs), hold property such as farming land, commercial & residential property as well as share portfolios. Increases in these values, regardless of whether they are sold, will now meet the definition of earnings and be subject to Division 296 tax.

Where is it now?

The SMSF Association has been lobbying the Senate cross bench, including key Senators and the Shadow Treasurer outlining the extremely poor drafting of the legislation and the unfair and unintended consequences which would occur.

The SMSF Association has now got the National Farmers Federation (NFF) and Council of Small Business Organisations Australia (COSBOA) onside, urging Parliament to scrap or significantly amend the legislation. The lobbying continues in earnest!

At this stage we have no further news. As soon as it becomes law, those taxpayers affected will need to get advice to confirm how they will be impacted.

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