The Australian Parliament has passed legislation to increase tax rates on high superannuation balances, following crucial support from the Greens party in the Senate. The revised bill introduces new tax thresholds for balances exceeding $3 million, incorporates indexation for these thresholds, modifies provisions related to unrealised gains, and expands support for low-income earners.
The Australian Labor government's revised bill to increase taxation on superannuation fund earnings above $3 million has passed the Senate with the support of the Greens party. Treasurer Jim Chalmers introduced the legislation, which marks the government's second attempt to modify super fund earnings taxation. The Coalition opposed the changes.
Revised Tax Rates and Thresholds
The new legislation includes several modifications to superannuation taxation:
- The concessional tax rate on earnings for superannuation balances between $3 million and $10 million will increase from 15% to 30%.
- A new tax rate of 40% will apply to superannuation balances exceeding $10 million.
- Both the $3 million and $10 million thresholds will be indexed to inflation.
The policy is projected to affect approximately one in every 200 super fund holders.
Changes to Low-Income Support
The low-income superannuation tax offset (LISTO) will increase from a maximum of $500 to $810. The eligibility threshold for this offset will rise from a taxable income of $37,000 to $45,000. This $45,000 threshold will be linked to future changes in the second income tax bracket. These changes to the LISTO are scheduled to take effect on July 1, 2027.
Addressing Unrealised Gains
Initial proposals for the legislation had faced criticism regarding the method for taxing "unrealised" capital gains. The revised bill addresses these concerns by modifying provisions for taxing unrealised gains based on industry feedback.
For large superannuation funds, a workaround involves identifying high-balance individuals annually and applying the additional tax based on the entire year's earnings. These funds will have flexibility to adapt their systems, guided by government principles requiring a "fair and reasonable" approach. Smaller funds, such as self-managed super funds, will have specific guidelines to determine the portion of assets belonging to each member for tax purposes, taxing only realized gains.
Political Context and Support
The Greens' support was essential for the bill's passage through the Senate. Greens' treasury spokesperson, Nick McKim, stated that the party's support for the revised package signaled a call for the government to pursue further tax reform in the upcoming federal budget.
Mr. McKim described their cooperation as a "down payment" for Labor to undertake "genuine, progressive" tax reform, indicating support for potential reforms such as reducing the 50% capital gains tax discount and placing caps on negatively geared properties.
Treasurer Jim Chalmers welcomed the development and thanked the Greens for their constructive engagement. Mr. Chalmers accused the Coalition, who opposed the bill, of "defending those with millions in super at the expense of working Australians."
Expected Impact and Revenue
The updated policy is projected to raise an estimated $2 billion in 2028–29, which is slightly less than the $2.5 billion projected under the original proposal.
The superannuation industry peak body, ASFA, welcomed the changes, with chief executive Mary Delahunty stating that they would make the system "fairer and more sustainable."
Implementation Dates
The new superannuation tax rates are scheduled to take effect on July 1 of the current year.
The changes to the low-income superannuation tax offset are scheduled to become effective on July 1, 2027.