TaxRambling.com

From 2025‑26, the tax rate applied to earnings for superannuation balances above $3 million will be 30%.

UPDATE – GOVERNMENT CLARIFIES TO THE 30% IS AN EXTRA TAX AFTER YEAR END ONLY ON EARNINGS ABOVE $3 MILLION

I assume this means that a super fund in accumulation phase that has a total superannuation balance at 30 June of $3 million or over will have a tax rate on earnings in the subsequent year of 30%, rather than the current 15% (UPDATE – WHICH IS NOW WRONG). And now four easy questions for those who came up with this change…

1. I have $2.9 million in my super fund in accumulation, I get a 5% return and pay 15% on the $145,000 or $21,750 in tax leaving me an after tax gain of $123,250. You have $3 million in my super fund in accumulation, you get a 5% return and pay 30% on the $150,000 or $45,000 in tax leaving me an after tax gain of $105,000. I have an $18,000 better after tax return on $2.9 million in super than you have on $3 million in super. 
   
   QUESTION: Does the Government know they are going to create the largest ever effective tax rate in history – where $1 more of assets in your super fund puts you over the $3 million threshold and you end up paying $22,500 more tax – effective tax rate cause by the one additional dollar is 2,250,000%? Will this have people intentionally trying to avoid the value of their super balance going over $3 million (Quick, put some in cash in a low interest account so I don’t get a good return and go over $3 million)?
   
2. I bought 150 bitcoin in 2016 for $500 each (cost base of $75,000). They are now worth over $3,000,000. If my fund sells them on 30 June 2025 the Capital Gain will be $2,925,000 x 2/3 (Discount) x 15% = 292,500. If I sell them the next day the tax will be $2,925,000 x 2/3 (Discount) x 15% = 585,000. Hold the assets for one more day and incur an additional $292,500 for that day, even though the asset’s price did not change. 
   
   QUESTION: In this intentional that everyone with a balance above $3 million will have to crystalise/sell assets with capital gains on 30 June 2025 to avoid doubling the tax they will pay when they sell the assets? Will this mean any year you think you might go over $3 million you will need to do a wash sales (sell and buy back)? How will you do this with illiquid assets or assets with transaction taxes like stamp duty – business real property?
   
3. The transfer balance cap is going to be $1.9 million on 30 June 2023. If CPI says at around 8% (I hope it does not) by 2029 the transfer balance cap will be over $3 million. The PM was clear that the new $3 million threshold will not be indexed…
   
   QUESTION: Does the Government understand that this will mean people will try to keep under $3 million of assets in their super fund (as discussed above), and then, a year or two out from retirement they will desperately try to get the assets up to the transfer balance cap so they can transfer the full amount available under the transfer balance cap to retirement phase, tax-free, super?
   
4. If I start work when I am 25 earning $114k a year every year and get 12% super on top of that and every year I get an 8% return each year, my super balance at 65 is $3,000,000. So it is possible that people who only have put into their super what the government requires their employer to do (no additional employee contributions) can find they are paying pretty much the same tax rate in super (30%) that they would have paid if they had received it as salary and wages (stage 4 tax cuts would see the tax rate on this being 30% plus 2% Medicare Levy).
   
   QUESTION: Why don’t these taxpayers get any tax benefit from earnings in super?

As I said… easy questions…