Understanding the moving target for changes to superannuation

This year, the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (Bill) – commonly referred to as the Divisions 296 Superannuation Tax or the $3 million Superannuation Tax - has attracted extensive media attention and sparked widespread debate in the industry and community.

So what is it exactly and what is the current status of the Bill?

This Bill passed the House of Representatives in April but has since stalled in the Senate, where the Greens are negotiating amendments that don’t quite address the core concerns.  Put simply, the Bill introduces an additional 15% tax on total superannuation balances over $3 million.  

The Parliament of Australia website currently lists the Bill as “not proceeding”.  That’s not to say it will not be re-introduced at a future sitting, even if not in its current form.

There has been broad support for the introduction of a higher taxation imposed on large superannuation balances.  However, two major issues continue to be raised about the proposed changes.

1. The $3 million threshold is not indexed

What this means is that $3 million remains $3 million unlike, for example, the Transfer Balance Cap in superannuation, which increases by incremental amounts every year.

The Greens are seeking a change that would reflect $2 million indexed.  A reduction to $2 million is not ideal, given the current cost-of-living crisis and the amount of capital today’s working generations will need to comfortably self-fund their retirement.

2. Taxing unrealised gains    

Under the current complicated formula, superannuation earnings are calculated with reference to the difference in a total superannuation balance at the start and end of the financial year, with adjustments for withdrawals and contributions.  If there is an increase in the market value of assets held in superannuation, it will be taxable under the current proposal, regardless of whether those assets have been sold. 

For individuals with self-managed superannuation funds holding large capital assets, such as farming land, this could create liquidity problems for the fund.  The extent of this issue will depend on the value of the asset and the general availability of cash or easily liquidated assets to pay any tax liability.

What to do?

The proposal is not yet law, and it might never be in its current form.  Before making any changes to assets held in superannuation, it is important to first consult with your financial adviser. Structuring outside of superannuation could result in higher taxation consequences than keeping the asset inside superannuation.

Should it eventually pass through the legislative process, seek advice about what it means for you.  It may also be worthwhile revisiting your estate planning at that time – there are some unintended consequences for superannuation death benefits to be considered if this Bill ultimately passes through the Senate.