In a significant shift, Treasurer Jim Chalmers has announced reforms to Australia’s superannuation tax system, aiming to create a fairer financial landscape for Australians. The changes, unveiled on Monday, will impose a steeper tax on superannuation balances exceeding $3 million, while also benefiting younger workers and low-income earners.
The revised policy will double the tax rate from 15% to 30% for every dollar above the $3 million threshold. This new tax rate will be indexed to inflation, ensuring it adjusts over time. Additionally, the previously proposed tax on unrealised capital gains has been removed, a move that many experts view as a positive change. Chris Balalovski, a partner at BDO, highlighted that taxing unrealised gains is uncommon in Australia and noted its rarity among OECD countries.
Key Changes to Tax Rates
For those with superannuation balances exceeding $10 million, the tax rate will rise to 40%, which will also be indexed to inflation. Despite earlier support for the initial tax structure, Chalmers stated that these adjustments will lead to a more equitable superannuation system. “This is meaningful and substantial tax reform which will make the superannuation system fairer from top to bottom,” he remarked, emphasizing the positive outcomes for individuals with lower incomes.
Young Australians and low-income earners stand to gain the most from these reforms. Balalovski pointed out that individuals with illiquid assets, such as primary producers and those with properties in self-managed super funds, will particularly benefit. They will only incur tax when they liquidate their assets, rather than facing immediate taxation on unrealised gains. Young professionals, whose superannuation balances are likely to grow, will also benefit from the inflation indexing, potentially avoiding the $3 million threshold altogether.
Support for Low-Income Earners
The reforms also include enhancements to the Low Income Super Tax Offset (LISTO), which aims to assist lower-income workers in building retirement savings. From July 1, 2027, the LISTO will increase by $310 to $810, while the eligibility threshold will rise from $37,000 to $45,000. Chalmers stated that this adjustment aligns with the government’s broader tax cuts set to take effect in 2027.
Data from the Super Members Council indicates that these changes could result in an additional $60,000 in super savings for some low-paid workers by the time they retire. Misha Schubert, chief executive of the Super Members Council, expressed optimism about the reforms, stating that updating the LISTO will significantly enhance retirement prospects for over a million of Australia’s lowest-paid workers.
While the policy primarily targets higher-income earners, approximately 8,000 Australians with superannuation balances exceeding $10 million will face increased tax burdens. Balalovski noted that these individuals will experience an additional 10% tax, making them the primary losers in this reform.
The complexity of the system may increase, particularly for high-net-worth individuals, although Balalovski believes this will not significantly affect the majority of Australians. “For high net worth or emerging high net worth, it is an additional layer of complexity,” he explained, suggesting that these changes may prompt individuals to seek financial advice.
Overall, the revisions to Australia’s superannuation tax system represent a substantial shift aimed at fostering equity. With a focus on supporting low-income workers and young Australians, the government seeks to ensure a more balanced approach to retirement savings and taxation.
