Sarah Forman’s take on the latest in tax changes to super
Watch Sarah Forman, our Group Executive for Advice share her thoughts on the proposed legislative changes to tax rates on super.
Get an update on what’s happening with super rules
Iby Ibrahim, our Advice Strategy Expert, explains what’s new in super and what the government announcement about tax for accounts over $3M really means.
Death and (super) tax
Who it’s for: people who have a taxable component in their super and can access their funds
It’s often said the only certainties in life are death and taxes. When it comes to super, you could still be paying tax after you die. However, there are things you might be able to do now to reduce this tax bill and pass more onto the next generation.
A super death benefit tax is generally only paid when you are passing your super onto your non-dependents, like adult children. Your dependents, like your partner, usually won’t have to pay this tax.
Transfer Balance Cap increase to $1.9m
Who it’s for: anyone starting a retirement income stream
For anyone starting their first retirement income stream, there is a limit on the amount that can be transferred into your income stream or other retirement phase account. This is called the transfer balance cap and on 1 July 2023, is expected to increase from $1.7m to $1.9m.
Unfortunately, people who’ve already used up the existing $1.7m cap won’t be able to benefit from the increase in the cap. However, those that haven’t used up their entire cap could benefit from this increase. If you’re thinking about moving more money into retirement phase we recommend talking to your financial planner to ensure you maximise your benefit and don’t breach any rules.
Tax on super over $3m
Who it’s for: people who have a super balance over $3M from July 2025
There’s been a lot of media attention about the government’s plan to increase tax for Australians who have a total super balance over $3M. This change is only a proposal and won’t come into effect until at least 1 July 2025, if it is passed into law. Below shows a breakdown of the changes to better understand how the super will be taxed.
The government has proposed applying an additional tax of 15% on earnings from super above $3M. This means if your total super balance is over $3M on 30 June 2026, the earnings on the first $3M will continue to be taxed at up to the current 15% rate. It is the earnings on the amount over $3M that is proposed to attract an additional 15% tax, adding up to 30% tax on these earnings. In a nutshell, the extra 15% tax doesn’t apply to all earnings, just earnings from the amount over $3M at the end of the financial year. Note, defined benefit income streams will remain tax free.
This is still just a proposal, and the government has indicated it won’t be legislated until after the next election. If and when it is passed into legislation your financial planner will be able to determine how you might be impacted and what options you have.
Disclaimer
This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our Financial Services Guide, any relevant product disclosure statement & Target Market Determination, before making a decision. Call us or visit our website for a copy.
Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL No. 238430), wholly owned by Aware Super (ABN 53 226 460 365) whose trustee is Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340). For customer service please call 1800 620 305.
^When you withdraw money from super, you can’t pick which component (tax-free or taxable) you withdraw from. Your super fund will process any withdrawal according to the existing proportion of each of these components.
*This could be as high as 30% for people who have an untaxed element, within regular accumulation accounts an untaxed element could arise if you held Death cover within your account and the proceeds were added to your super.