The Government has confirmed a new 15% tax directly on individuals with superannuation balances over $3million along with further measures
$3million super member balance tax confirmed
The Government confirmed their intention to pursue a new 15% tax directly on individuals with superannuation balances over $3million.
The new tax has received significant media coverage already with the Budget announcement providing no further insight. Our previous bulletin with further detail on how the new tax is intended to apply which can be found here.
The new 15% tax will apply to changes in an individual’s total superannuation balance during an income year to the extent that their balance exceeds $3million at year-end. Adjustments are made with withdrawals and net contributions made during the year. The new tax will be in addition to the tax paid on the taxable income of the superannuation fund.
The stated commencement date is 1 July 2025 with 30 June 2026 being the first time the superannuation balances of an individual would be aggregated and tested against the new $3million threshold.
Amendments to superannuation Non-Arm’s Length Income (NALI) provisions
The Government also made announcements in relation to the application of the NALI rules for superannuation funds.
The Government confirmed it would make amendments that would limit the amount of NALI of a Self-Managed Superannuation Fund (SMSF) and small Australian Prudential Regulation Authority (APRA) fund that is taxable at 45% to twice the level of any ‘general expenses’ incurred by the fund under non-arm’s length arrangements. We made a submission on the consultation paper that foreshadowed these changes where we did not support this approach and instead advocated for such expenses to be treated as contributions to the fund.
While it is disappointing that the announcement has not adopted our recommendation, the announcement capping the amount of NALI to twice the expense amount is an improvement on the consultation paper which proposed a cap of five times the amount. While limiting the tax cost associated with a small oversight or underpayment of a general expense in a SMSF is welcome, there is still considerable complexity in the provisions which will have to be managed.
Large APRA-regulated funds and expenditure that occurred prior to the 2018-19 income year are stated to be exempt from those same non-arm’s length provisions.
Consistent with the consultation paper, the amendments are expected to apply from 1 July 2023 on expiry of the ATO’s transitional compliance approach for general expenses currently applicable until 30 June 2023.
Super pensions – no extension to 50% minimum pension drawdown amount
There was no extension announced to the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions which has now been in place since 1 July 2019. Accordingly, superannuation funds will need to commence paying standard annual pension amounts from 1 July 2023.