On October 30, 2023, Treasurer Jim Chalmers announced significant reforms to Australia’s superannuation tax system. These changes aim to address inequities in the existing framework while providing relief to younger workers and those with lower incomes. The revised policy maintains the existing tax rate for superannuation balances over $3 million, but introduces new measures intended to create a fairer system.
Under the new regulations, the tax rate for superannuation balances exceeding $3 million will increase from 15% to 30% for every dollar over this threshold. Additionally, this threshold will be indexed to inflation, ensuring that it rises in line with the cost of living. Notably, the previously controversial tax on unrealised gains has been eliminated. According to Chris Balalovski, a partner at BDO, the taxation of unrealised capital gains was uncommon in Australia and rare among OECD countries, making this adjustment a welcome change.
Those with superannuation balances above $10 million will now face a tax rate of 40%, also indexed to inflation. While Treasurer Chalmers had previously defended the original superannuation tax framework, he stated that these modifications will contribute to a more equitable system. “This is meaningful and substantial tax reform which will make the superannuation system fairer from top to bottom,” he declared during the announcement. “It means better outcomes for people on low incomes.”
Beneficiaries of the New Tax Structure
Significant beneficiaries of the revised tax structure include younger Australians and those with lower incomes. Balalovski highlighted that individuals with illiquid assets, particularly primary producers and those owning properties in self-managed super funds, stand to gain the most. “Nobody likes paying additional tax, but now they know they’ll only pay when they liquidate the asset,” he explained.
Young Australians, especially those beginning their careers, will also benefit from the indexation on superannuation thresholds. Balalovski noted that those with balances approaching $3 million may never exceed this indexed figure, providing an added layer of financial security.
In addition to these changes, approximately 1.3 million lower-income workers will see improvements through adjustments to the Low Income Super Tax Offset (LISTO). Effective from 1 July 2027, the LISTO will increase by $310 to $810, while the eligibility threshold will rise from $37,000 to $45,000. Chalmers emphasized that these changes align with the government’s tax cuts set to take effect in 2027, ensuring a fairer tax concession for super contributions.
Super Members Council modelling indicates that these enhancements could lead to lifetime low-paid workers accumulating up to $60,000 more in superannuation savings by retirement. Chief Executive Misha Schubert remarked, “By fixing the LISTO, the government will make a big difference to the retirements of more than a million of Australia’s lowest-paid workers.”
Impact on High Balance Superannuation Holders
Despite the positive outcomes for many, about 8,000 Australians will face a heavier tax burden under the new policy. Individuals with superannuation balances exceeding $10 million will incur an additional 10% tax. Balalovski pointed out that high net worth individuals may find the new regulations introduce additional complexity, although he believes it is unlikely to impact the majority of Australians.
“While the system becomes more complex for high net worth or emerging high net worth individuals, it is a reason to engage with an adviser,” he stated. The reforms reflect an attempt to balance the tax burdens more equitably across different income levels, with the aim of ensuring a more sustainable superannuation system for future generations.
Overall, the sweeping changes to the superannuation tax policy represent a significant shift in Australia’s approach to retirement savings. By targeting higher earners while providing relief for those at the beginning of their careers or with lower incomes, the government aims to create a more equitable and sustainable framework for all Australians.
