Super tax concession changes: consultation

The government has released a consultation paper on the application of the proposed reduction in super tax concessions for individuals with super balances over $3m, including those with SMSFs. Among other things, the consultation paper seeks views on whether the proposal would create any unintended consequences and whether modifications to the proposed portioning methods should be applied.

To recap, the government proposed in late February that individuals with a total super balance (TSB) of more than $3m combined in all the super accounts will have their super tax concession tax rate reduced from 30% to 15% from the 2025-26 financial year onwards. This means from 30 June 2026, those individuals with earnings on part of their TSB over $3m will attract an additional 15% tax. The additional tax will be applied directly to the individual and there will be no change to the tax arrangements within super funds.

The ATO will continue to calculate the TSB of all individuals annually using existing information provided by super funds and SMSFs. Individuals will be able to quickly identify whether they will be subject to the new tax by reference to their TSB at the end of each financial year through myGov. As proposed, the threshold will not be indexed and is not shared between spouses, family members, or between other individuals who have interests in the same fund such as an SMSF.

Once it has been determined that an individual’s TSB exceeds the threshold of $3m for the year, earnings related to that part of their TSB will attract an additional 15% tax. First, the earnings are calculated as the difference between the TSB for the current year (adjusted for withdrawals and contributions) and their TSB from the previous financial year. If the calculated earnings are negative, this amount can be carried forward and used to offset future earnings for this purpose and no further calculations would be required. Negative earnings will not expire and can be applied over multiple future years.

Otherwise, where the earnings are positive, the next step is to calculate the proportion of earnings that can be attributed to super balances of more than $3m on a proportional basis. For example, if an individual’s TSB is $6m on 30 June 2026, the proportion of TSB that’s more than $3m is 50%, therefore 50% of the calculated earnings will attract an additional 15% tax.

The additional 15% tax will be determined by the ATO and levied directly on individuals, similar to the existing Div 293 tax. This will also be imposed separately from personal income tax, and it is intended that the amount of tax payable would not be able to be reduced by deductions, offsets, or losses available under the personal income tax system (ie only prior year negative earnings could be applied). Once an individual receives notice of the amount payable, they will have the option of either paying the liability from funds held outside of super or by releasing amounts from one or more of their super interests.

If you’d like to shape the application of this measure, whether it be an alternative to the proposed portioning method, unintended consequences, or modifications, now is the time to act. The consultation will only be open for a limited amount of time.