‘Retrospective’ tax issues flagged with $3m threshold for super

***Editor’s note: Treasury has now released further details on the earnings tax calculation for high balance funds***

On Tuesday (28 February), the government announced that from 2025–26 onwards, it will will apply a 30 per cent tax rate to earnings for balances above $3 million, opposed to the current 15 per cent rate.

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Speaking before the announcement about the $3 million threshold, SMSF Association heady of policy and advocacy Tracey Scotchbrook said the introduction of a threshold means there will be a “tiered tax approach”, she said.

There is a zero tax rate for earnings on amounts in pension phase below the transfer balance cap, a 15 per cent tax rate for those with balances above the transfer balance cap but below the $3 million soft cap and there will be a 30 per cent tax rate for earnings on amounts above the $3 million.

The proposed change to the tax regime for super raises important issues for how unrealised capital gains will be treated, she noted.

“This is an interesting question because if you change the tax rate and you’re leaving those funds within super, then you’ve effectively made those tax measures retrospective. Capital gains that have accumulated on an asset that’s been sitting there for 20 years are now going to be taxed differently to when those gains have been earned.”

“That’s not an ideal scenario at all.”

Ms Scotchbrook noted however that there is a precedent with the fair and sustainable super reforms.

“You’ll remember the headache of people trying to restructure their pensions and then looking at the CGT concessions that applied depending on people’s scenarios.”

“We think there’s an opportunity if this is where they’re going to go to allow for a deemed disposal in a similar fashion to what happened there to make sure that underlying 15 per cent tax rate is locked in, we get the asset cost base reset and then we can move forward.”

Alternatively, Ms Scotchbrook said there could be a new calculation that gets factored into the ultimate disposal that achieves a similar outcome.

In an article this week, Heffron head of SMSF technical and education services Lyn Formica also raised concerns about the retrospective impact of the measure on capital gains which have been accruing over the years but haven’t been realised until after 1 July 2025.

“If a capital gain is realised on or before 30 June 2025 in an accumulation account, it would be taxed at 10% (ie 15% less 1/3rd discount that applies to assets held longer than 12 months). If sold a day later on 1 July 2025, the capital gain would be taxed at 20% (ie 30% less 1/3rd discount). Will we see another cost base reset like we saw in 2017?” she questioned.

The SMSF Association said this week that while it remains opposed to the introduction of the new threshold on superannuation balances, having a threshold with earnings on balances above the cap taxed at a reduced concessional rate was its preferred option.

“Initial fears of a hard cap targeting certain SMSFs with high balances appear to have thankfully not be realised,” said SMSF Association chief executive Peter Burgess.