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Article by Corey Bavin Byfields Associate.
Federal Treasurer Jim Chalmers has this week announced significant changes to the proposed $3million superannuation tax, more than two years after it was first revealed. The revised approach addresses two of the most criticised aspects of the original plan: the inclusion of unrealised capital gains and the failure to index the $3million threshold.
The tax is still drafted to be an extra tax on top of the normal super taxes.
What’s changed?
Under the updated proposal, the tax will now begin on 1 July 2026, a 12-month delay from the original timeline. The first relevant calculation date will be 30 June 2027.
Importantly, there are now two thresholds:
- A 15% additional tax will apply to “earnings” on the portion of an individual’s total super balance over $3million.
- An additional 10% (bringing the total to 25%) will apply to earnings on balances over $10 million.
Both thresholds will be indexed to inflation, but not guaranteed annually – instead, increases will occur in increments of $150,000 (for the $3million threshold) and $500,000 (for the $10million).
A quick example:
Take Jack, who has $6 million in super at 30 June 2027. Half of his balance is over the $3 million threshold. If his super fund earns $100,000 during the year (e.g. from a farm lease), Jack would be liable for a division 296 tax of:
15% x 50% x $100,000 = $7,500
Here’s our take:
One of the most controversial elements of the original proposal was the inclusion of unrealised capital gains, such as increases in land value. These are now excluded; we see this as a big improvement.
However, it remains unclear whether the new tax will apply only to realised gains that accrue after 1 July 2026, or to the entire realised gain, even if part of the increase in value occurred earlier. For example, if farmland bought in 2010 for $400,000, is worth $2 million at 30 June 2026 and sold for $2.1 million in 2027, will the taxable gain be $100,000 or $1.7 million under this new tax’s definition of ‘earnings’? Our assumption would be just the $100,000.
Other grey areas include whether the capital gains discount (1/3rd for assets held over 12 months) will apply, and how pension-phase income, typically tax-exempt, will be treated under the ‘earnings’ calculation in this new regime.
Like all super changes, there’s a lot to unpack and a long way to go before the Bill is introduced and passed. At Byfields, our expert SMSF team can help navigate you through the complexities of this tax.
Please contact Corey Bavin on coreyb@byfields.com.au if you would like to discuss further.