Understanding the Proposed Super Tax Changes

If you've heard about possible tax changes to superannuation balances exceeding $3 million, you might be wondering how it could impact you. Let's break it down in simpler terms and see what actions you can take.

The Division 296 Tax Proposal Explained

This proposal suggests adding a 15% tax on earnings above $3 million in super balances, doubling the tax rate on certain earnings from 15% to 30% for amounts beyond this limit. It's important to note that the $3 million limit refers to your total super balance, not individual investments within your super fund.

The key issue here is how your earnings are calculated. The proposal includes taxing both profits from sold assets (realised gains) and the increased value of unsold assets (unrealised gains). This could result in unexpected tax bills due to market fluctuations.

How It Affects You

Superannuation remains a viable tax-saving option for high earners, especially those in the 47% tax bracket, including the Medicare levy. However, if your super balance includes appreciating assets like property under construction, the proposed changes could result in higher tax obligations for you.

For individuals with valuable assets in their super fund but limited cash flow to cover increased taxes, this can pose significant financial challenges. Understanding how these changes fit into your tax strategy is crucial, especially if your work revolves around property development or long-term projects.

Protecting Your Position

If your super balance is nearing or exceeds $3 million, it's wise to take action now. Consulting with your accountant and financial adviser can help you prepare. Consider these strategies:

• Spouse Contributions: Sharing super contributions with your spouse can balance out individual balances and savings growth.

• Alternative Investments: Explore different investment options outside super to reduce the tax impact with guidance from your accountant.

• Asset Review: Assess your super portfolio assets. Adjusting your mix can limit exposure to higher tax liabilities under the new rules.

Acting Promptly

Although the Division 296 tax proposal is pending review, its potential effect on high-balance super accounts stresses the need for early planning. Those who proactively address these changes can effectively manage tax implications and establish a strong financial foundation for the future.

Feel free to reach out if you have any questions or need guidance on how these proposed changes might impact you and your super investments.

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Nijo Antony

Director