The Albanese government has responded to widespread concerns and dumped its proposal to tax unrealised gains on superannuation balances of above $3 million without indexation.
Instead, Treasurer Jim Chalmers announced the following significant changes to the Division 296 extra tax on superannuation balances:
- The tax will no longer apply to unrealised gains. This was poorly designed and catered to the industry funds, which cannot determine realised gains on an individual level.
- The $3 million threshold will be indexed. This should always have been part of the original proposal, because failing to index the cap would have eventually impacted ordinary Australians’ retirement savings.
- Member balances above $3 million but below $10 million will be taxed at 30% (i.e., double the current level).
- Balances above $10 million will be taxed at 40%, with this higher cap also indexed.
- The tax will apply to defined benefit pensions as well.
- The start date has been pushed back to 1 July 2026 (it was initially proposed for 1 July 2025).
- From 1 July 2027, Australians earning between $28,000 and $45,000 will receive an $810 offset at tax time.
While the devil will be in the details, these changes are sensible. They will remove the complexities and distortions associated with taxing unrealised gains, will improve equity, and will provide billions of dollars of extra revenue for the federal budget.
However, I would have liked to have seen the threshold lowered to $2 million.
The changes adopted by Labor are similar to those advocated by Wilson Asset Management, explained earlier today.
