Proposed tax on superannuation balances over $3 million
By Tara Cuddihy
The proposed tax on superannuation balances over $3 million has raised concerns, especially for Self-Managed Super Funds (SMSFs) holding non-residential properties like farming land. With a focus on taxing unrealised gains, the measure could significantly impact the agricultural sector and create liquidity and double taxation issues.
The recent proposal to introduce an additional tax on superannuation balances exceeding $3 million has sparked considerable concern among Australians, particularly those with SMSF’s invested in non-residential properties, including farming land. The Australian Taxation Office’s March statistics highlight that SMSFs collectively hold approximately $111 billion in non-residential property, which would include farming properties, meaning that the proposed tax changes could arguably have a significant impact on the agricultural sector within super funds.
The main reason this proposed tax has come under so much attention is that unrealised gains on the increase in market value of farming properties held in super funds could be taxed at a rate of 15%. Furthermore, proportionate earnings of a member’s balance over $3 million, adjusted for contributions and withdrawals, could also face an additional 15% tax. It is important to recognise that this proposed tax on the increase in market value does not negate the capital gains tax levied upon the sale of the property, meaning tax is levied on both the realised and unrealised gains of the property presenting an overlapping layer of taxation without any cost base adjustment or credit.
The implications of this proposed tax vary widely depending on individual circumstances. For instance, individuals nearing retirement age might have the option to withdraw their superannuation and transfer assets out to lower their balances below the $3 million threshold, potentially minimising the impact of the new tax implications. In contrast, younger members or funds comprised of mixed generational members may face more complex scenarios, balancing different financial strategies and needs.
Should the legislation pass, members will need to consider intricate decisions regarding the transfer of properties out of their super funds, noting the flow-on impact of capital gains tax and possible stamp duty. In this context, broader estate planning and succession objectives should also be taken into account to align with individual future goals.
A significant concern accompanying the proposed tax is its impact on liquidity. Since it taxes unrealised gains, individuals may have to decide whether to pay the tax personally or release funds from their super fund to handle the tax obligations. For primary producers, notable challenges arise due to the inherent seasonality of agriculture and the impact on liquidity.
It is worthwhile to begin evaluating how this proposed tax might impact your own financial situation and other potential impacts on estate and succession planning. However, without the legislation being finalised, it is prudent to avoid making any comprehensive decisions until the law’s specific details and final form are confirmed.
Tara Cuddihy
Partner – Private Tax
PwC Australia
M. 0439 747 468
tara.cuddihy@au.pwc.com
This content is for general information purposes only, and therefore does not constitute financial product advice and should not be relied upon as financial product advice. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider consultation with professional advisors. This content is based on proposed legislation and may change when the law is enacted.