Our experts on Jim Chalmers' super tax backdown

The fact is that the revised changes as stated are unworkable, at least without massive investment within the super industry to improve data and account reporting.

For instance:

If the tax is paid by the fund then how will the fund know to pay 15% or 30% tax?
A member may have $2M in fund A and $2M in fund B. The funds do not share information about the member balances and therefore will not know that the 30% tax rate is to apply.

If the tax is to apply on a personal tax return then how will the member know what the fund taxable earnings are? There is nothing on your statement about taxable earnings or realised gains. The member only sees a unit price and unit balance and therefore any additional tax cannot be calculated.

Whilst many did not like the existing Chalmers proposal, at least it could be implemented within the existing super framework, the new proposal is nothing but a thought bubble and shows a complete lack of understanding of superannuation by the PM.

Under the original proposal this was a tax on a valuer’s opinion of unrealised gains in an SMSF. By removing the tax on unrealised gains, we now have a tax on the industry fund’s best guess of each members proportion of the fund’s realised gains.

We are in this bizarre situation only because the government is trying to make one taxpayer (the fund member) partly responsible for the tax liability of another taxpayer (the super fund).

The original tax was to be levied across all of each member’s superannuation interests and that could only be calculated and administered by the ATO. By design, it created no extra work for industry super funds themselves but it did slug their nemesis, SMSFs. It might explain why the Labor Treasurer was attached to this proposal for so long.

Jon's point that Divn 296 tax makes one taxpayer (the fund member) liable to pay the tax of another taxpayer (the super fund) has always been the key to this issue. It is the reason that a complete rethink of this proposed tax is necessary.

Tax is paid by 3rd parties all the time. The employer pays the PAYG tax for the employee.

Slandering professional valuers?

“ In an SMSF, it is very easy. There are no more than 6 members and they are all in the same investment option together, so they are not trading assets with each other. It is very easy to determine each member’s proportion of the fund’s tax obligation.”

Perhaps cap the maximum balance in industry funds at $3m (indexed) thereby effectively carving out industry funds from having to account for the new tax thus saving money for members.

Is this too simplistic?

A hard cap of funds allowed in the tax free environment is such as obvious (and fair) approach. Seriously, how much do you need in retirement and if you have more than $3.0m (or $6.0m as a couple) then you dont need tax free over that amount from the wider tax paying community. Just force people to take it out…into trust or whatever….with 2 years warning of the new system. So much simpler and less garbage accounting etc so also far more efficient for the nation

This is not a good idea. You are potentially forcing the sale of an asset just because it grows in value. This will not only trigger and additional tax in cgt but also may involve substantial stamp duty. If this is a commercial property for business or a farm this is daft.

I would prefer to see 47% tax on income of the fund after some level.

What is also missed by many is that when the person dies, unless they have a unicorn pension (massive pension tax free), then the death benefits tax when these members die will also be massive.

Also, unless you have some 10-50 baggers in your portfolio these kind of balances won’t be there in the future as you can’t contribute like to used to be able to.

I have no issue with the newly proposed div296, and would even be happy with $2m first tier, but there does seem to be a bit too much torches and pitch forks for ppl that simply complied with the law of the day as set by the govt of the day.

I have previously argued for the hard cap to be two times the TBC so people can survive a market fall…so thats $4.0 million (or $8.0m a coupe)…more than evnough for funding retirement. yes, rule would then be changed, but they are changing anyway and a hard cap at those levels with 1-2 years warning is heaps. Anything more is simply unjustifiable. The argument about death taxes will be avoided for most people anyway by drawing it out before death when sick or getting old (yes transferring the farm or business shed/building)

You can't do that because that would go against the social contract of super, which is to lock the money away for 40 years. You can't have people taking their money out early before they have done their 40 years of time if they happen to hit $3 million at the age of 45. That would not be "fair and equitable".

Simply capping the maximum balance in industry funds at $3m does not catch those who have their super in multiple funds with the total balance exceeding $3m.

I understand the ATO knows how much an individual holds in super across multiple funds.

Is that correct?

Yes. The ATO knows how much an individual holds in super across multiple funds. Your TSB (Total Super Balance) across all funds is shown in the ATO/Super section of MyGov. It now shows how much is in Pension and how much is in Accumulation. It's not a live balance, rather the EOFY ( ie 30 June) balance. Seems to be updated October each year after funds do their annual statements. Not sure if SMSFs are captured.

"Is this too simplistic?" - yes.

Investment funds, like superannuation, grow according to the laws of compounding - and therefore they grow exponentially. If someone's super is growing at say at an average 10% a year (picked as a round number) then at that late stage - and only at that late stage - a $3M super account is growing at around $300K a year.

The implication of this is that it's really hard to get people to save "just enough" in their retirement fund. The amount of actual retirement capital is VERY sensitive to the retirement date. If the person retires 5 years later, then the account grows to $4.8M. If they retire 5 years earlier though, they retire with a lot less less than the $3M. And the choice of retirement date might not really be up to them - it could be due to health issues or redundancy. It's also very sensitive to economic and market conditions in the decade before and after retirement.

Also, it's important to note that the "traditional" way of retirement planning is to use the Bengen 4% rule. If you want to retire on income of $100K, and not run out of retirement income in 30 years, then the rule tells us you need $100K/4% = $100K x 25 = $2.5M in retirement capital. From that perspective, $3M would seem like a pretty low "hard cap."

If you want to have a hard cap, you'd therefore make it something higher than the $3M mark, to give people time to adjust and get their money out after hitting their retirement goal. In effect, the new proposal does this, by taxing the $10M level at 40%. It's unclear at the moment how that applies to capital gains, or to superannuation in the pension phase, and that impacts on how attractive super is for accounts with more than $10M. But it stops being a strong tax incentive to keep tax money in super at that level. Depending on the specifics, some people consider that the $10M may be effectively a hard cap, where a hard cap didn't exist before.

So, the government's approach basically says:

* If you have over $3M in super, we're going to take some more tax
* If you have over $10M in super, we're going to take so much tax it doesn't make sense to keep the money in super any more.

So in effect, it's a progressive tax that caps out super at $10M.

Like I said the $3m should be indexed so that would partly address your 10% pa growth point.

Secondly if a member’s account balance exceeds the cap then they need to withdraw some funds to get it back under the cap.

@Trevor, the indexing is a separate point and not really relevant to my point - indexing doesn't pertain to the 10% issue. Whatever % growth it is, just take it as real growth rather than nominal growth (real growth, you'll recall, is the growth after taking into account inflation). If nominal growth is 13% and inflation is 3%, the real growth is 10%.

Re "if a member’s account balance exceeds the cap then they need to withdraw some funds to get it back under the cap" I understand that that's what you are proposing.

I just don't think it's a good proposal, firstly because someone who follows traditional retirement strategies and uses the 4% rule might reasonably want to accumulate more than $3M in retirement capital, for example if they have been high income earners and that shapes their views of retirement budget.

Secondly because say they are at $2.99M in accumulated superannuation assets, the market returns 10% growth (or, with volatility, maybe 15% growth in a year and 5% in another). So they go $300K or $450K over the limit in that year, and take it out during the next year. the whole thing just keeps on repeating. But markets are irrational. It might not be a good time for taking money out of super assets if it happens to be during a three year market crash. More to the point, if the market goes down in a crash by 50% then suddenly their $3M+ looks more like $1.5M+. So I'd build in a buffer and build in the hard cap at at something higher than the max target amount so that people can have some discretion to make wise decisions. Recall, the objective isn't to be punitive to wealthier people, it's to help people have a good retirement.

Also, it's worth bearing in mind that most of the personal income tax burden in Australia is borne by the wealthiest Australians. As per a separate FirstLinks article, https://www.firstlinks.com.au/100-aussies-seven-charts-on-who-earns-pays-and-owns -

"Just 15% of Australians have an annual salary of $120,000 or more ... the 15% earning more than $120,000 accounts for 68% of the net tax collected by the ATO" and

"- The top 3 paid 29% of all net tax
- The next 6 paid 18% of all net tax
- The next 30 paid 40% of all net tax"

So the top 12% of wage earners contribute 47% of all tax - almost half of it. The top 3% alone contribute 29% of the personal income tax take.

Also the wealthier, with large super balances, never draw on the Age Pension. They never qualify for it, and they never need it. Therefore they save the government from having to spend this money on them, reducing this pressure on the government. That's part of the point of the superannuation system, to reduce this budget pressure.

Other charts, e.g. from the AFR https://www.afr.com/policy/tax-and-super/super-tax-breaks-are-greatly-exaggerated-20250617-p5m81j , show that when you even out the super concessions for wealthy people against the Age Pension for the people who draw on it, even the top 1% receive less than double the total lifetime tax concessions of the less wealthy. But the top 1% have made the greatest lifetime contribution to the government through income taxes - far far more than double the contribution of the bottom 21%, who pay no tax.

The point is that you can slice and dice the "equality" issue a lot of different ways. The superannuation system shouldn't be a tax avoidance shelter, but there are good faith arguments why people would aim to accumulate more than $3M in retirement capital, based on traditional and widely accepted retirement planning methodologies.

@Lauchlan Mackinnon

The point of the Hard Cap is that people should not have more than $3M in Superannuation

It was never meant to be a wealth creation tool. The reasonable benefit limit should never have been removed, just indexed.

Howard and Costello allowing of Million dollar deposits to Super shouldn't have been allowed.

If you are in a fortunate enough to have more than $3M, why should you be allowed to have the generous tax concessions of Super for that excess. It should be invested outside of the Superannuation system.

$3M (indexed) is more than sufficient for an individual to part fund or fully fund their retirement.

If you need more, want more or have more than the $3M invest it outside of Super

Keating's purpose of Super was just that, allow a person to fund or part fund their retirement.

@Disgruntled, I think your comment relates to your personal view of how you think things SHOULD be in an ideal world, which of course you are entitled to.

However, the superannuation system has been in place for decades. People have made good faith investments (contributions) under the existing rules. Those contributions may have included concessional contributions, non-concessional contributions, downsizer contributions, contributions from selling a business, and so on.

Those rules have not had hard caps.

Whether the government agrees or not with your vision of the future is a collective policy decision, which in a democracy would reflect the various constituencies the MPs and Senators represent and balance their various needs in the best interests of the nation as a whole.

As to "If you are in a fortunate enough to have more than $3M, why should you be allowed to have the generous tax concessions of Super for that excess. It should be invested outside of the Superannuation system." - I answered that in other comments here. The basic answer is that that''s the way the system was designed. Not only do they have every right to accumulate however much they want within the rules of the system - with it being compulsory to contribute 12% of their income to it - but high earners / high superannuation account holders also pay most of the personal income tax collected in Australia, and they never pay the Age Pension (which is means tested and they never qualify for), and the new $10M and $3M limits do in effect present "soft caps" which start to encourage people to move money out of the super system when they hit the higher limits.

The new super policy changes those rules, in the direction you are advocating for. I don't see it as likely that the government will want to revisit these threshold limits any time soon after announcing and (in all likelihood) eventually passing this updated policy, or that a future Liberals / coalition government will be keen to lower the thresholds further.

Personally I'd rather see the wealth inequality conversation move on from attacking the high earners to, (for example),

* advocate for at least doubling the jobseeker unemployment benefit (and possibly introducing Universal Basic Income) and
* increasing the rental support that goes with jobseeker payments to reflect the reality of the costs of renting in Australian capital cities,
* tackling the housing affordability crisis, and
* pay for it by fixing the structural budget deficit by removing tax subsidies for fossil fuels, taxing multinationals on a minimum percentage of revenue (not just profits), getting fair dollar to taxpayers from our national resources dug up and sold overseas, and so on.

There's plenty of "bigger fish to fry" in my view for uplifting the hard workers than that some Australians are wealthier than others and use the rules of the system, put in place by the Labor Paul Keating government, to advance their financial interests.

@Laughlan Mackinnon. You make so many good points! It is infuriating that so much time is being used to try to 'punish' people for working hard, possibly in a professional job with a massive amount of responsibility in return for their higher income. They have followed the rules of compulsory super and through compounding, they happen to end up with a higher balance. Now the government wants to punish them for saving diligently. Yet fossil fuel companies take money from tax payers in subsidies to help them destroy the planet. Your point about the purpose of super was to fund retirement - and that a high income earner has the RIGHT to have a higher income in retirement, is a very good point. Your sentence " the point of super was not to punish the "wealthy" it was to allow everyone to support their retirement" seems to have turned into a "bash the hard working professionals who have earned a higher income" - and paid a massive amount of income tax all their lives. And the massive risk we all take - that OUR money is being locked up for 40 years or so...and if we die before 60...we never get a penny of it. Thank you for all your excellent explanations. Not sure what Firstlinks has done to the 'comment and reply' system but it does not allow me to comment directly under the actual person's post. No idea why.

'If you have over $10M in super, we're going to take so much tax it doesn't make sense to keep the money in super any more'

This part is new, but hasn't been discussed that much. It's classifying balances of $3-10m as 'large', and balances >$10m as 'very large'. As you say, it may discourage people with 'very large' super balances from holding so many assets in super.

The thresholds are arbitrary, but expressed as multiples of the TBC (currently $2m), they are 1.5xTBC ($3m) and 5xTBC ($10m). I don't believe these thresholds will be challenged or debated, they seem to be set in stone.

That wouldn't make industry funds happy as would be losing some big balances. Also how then to deal with those members who have an SMSF plus an industry fund super account.

Any change to the existing tax rates as they stand today (ie. 15% Income Tax, 10% Capital Gains Tax, no section 296) is retrospective and fundamentally unfair. These changes should be grandfathered just like the Capital Gains Tax was when introduced by the Hawke/Keating Government in 1985.

That is because Superannuants have abided by all the ever changing rules of Superannuation for upto 33 years. They have not been able to withdraw or spend their Superannuation money for that long period of time, and they made their decision to invest into their Superannuation based on the taxes existing at the time.

To change this retrospectively, particularly for retirees, is fundamentally unfair.

Future Superannuants may well reduce their Super contributions, spend freely and invest in their tax free Principal Place of Residence. Then pick up the Pension in due course thereby becoming an impost on Government.

Creating the precedent of fiddling retrospectively with Superannuation tax rates is bad policy. It destroys people's faith in the whole Superannuation system and will ensure that more people go on the Pension in time.

Agree with your points. Retrospective changes to any system is unfair. To do it to retirees who have almost no options to change now...is extremely unfair. Some commenters in this thread saying people should withdraw amounts over 3m...well...read the rules...you can NOT w/draw until you hit preservation age. You are forced to keep your money in there until you hit 60. Bad luck if you die before then, you never get the benefit, at all.

It looks like the higher tax would apply to realised gains that have accrued of many years - retrospectively taxation??? Also if they don’t want high super balances you should be able to stop contributing once you hit the limit of say $3m - It should at least be discretionary - or maybe it is designed for revenue raising??

All capital gains have been taxed at the current marginal rates when sold. It's nothing unique to this tax.

Not exactly. If the assets are held for longer than a year, there's generally a 50% capital gains tax discount.

Within super, it has been a 33% CGT discount. And it may apply differently in the pension phase.

However, it's unclear what how CGT will be treated within the new super legislation.

Nobody "makes" people part with part of their salaries into Super. Employee super contributions are made by employers on behalf of their employees and these contributions are in addition to employee salaries, so not "part" of their salaries. As an employer for many years I had to swallow hard and accept the relentless mandated increases in percentage paid into super accounts, in addition to salary increases. At least from now that percentage has plateaued at 12%. Employers' outgoings are 112% of Ordinary Time Earnings. Employees receive 100% of their salary. Any further contribution such as Salary Sacrifice and/or non-concessional contributions are at the discretion of the employee.

If we just think of this as a new Wealth Tax, I suppose it is the Govt's right to do so. However, How do we explain to someone with a gigantic balance that they are now being punished tax-wise, when they contributed with the Govt's say so and even encouragement ?
The Govt's ATO used to have a specialist RBL Unit in Bankstown Sydney, which gave individual permissions for quite large annual contributions eg more than $2 million in a single year! So, after authorising the contribution to be made in the first instance, the Govt now seeks to punish those who went ahead with the ATO's permission to make very large contribution/s.
Does this retrospective penalty seem OK to the experts?

What is going to happen to taxpayer funded Government Defined Benefits Superannuation Schemes??
And are they going to be hammered like those above $3m in Super?? This should of course include almost all politicians as the funds required to allow them to be paid hundreds of thousands of dollars annually in retirement exceed $3m.

And these same politicians and public servants are allowed to double dip by having a Superannuation scheme as well. This double dip needs to be stopped or capped AND added to their taxpayer funded Government Defined Benefits Superannuation Schemes for the purposes of assessing the tax they should pay.

We know Judges are NOT affected by this new tax.

So much for fairness!

If you can't be fair and equitable this ill thought out new s296 tax should be abandoned altogether.

Details please!! You are destroying both people's retirement planning and faith in Government.

Not quite correct for many on salary packages, Package up $X, SGC up $Y, salary up $(X-Y).

Given the original solution to tax members individually was because balances were available whereas earnings were not, it is far from clear how earnings have suddenly become available, although it is clear that the problem is industry funds and not SMSF's.I'm with Prof Ron that a complete review is required, and an opportunity for the Coalition, to get some real fairness into the system. But it looks more potential egg on the face for Spinner Jim as the murky details of getting earnings data out of the industry funds statrs to pile up. Watch this space.

One thing that hasn't changed is that SMSFs that hold assets through the super phase, and especially assets such as commercial properties, farms, etc and don't sell these assets until the retirement phase, continue to get a significant tax-advantaged leg up.

This is due to when such assets in an SMSF are sold to support retirement income streams, or make inter generational wealth transfers, in either case the fund pays ZERO Capital Gains Tax, irrespective of any threshold, and even after years of decent and unrealised capital gains in the accumulation phase.

In relative terms, this is a huge advantage for SMSFs over other types of fund structures, such as industry, retail and public sector funds, that unless they operate fully segmented pre/post retirement asset pools, will continue to apply commingled tax treatment across their memberships.

More universally, this highlights the increasingly strong equity and affordability rationale for the 'no tax after 60' regime introduced in the Howard era to be reviewed. But I expect it will be a brave government that does so.

If I can comment on the phrase that " there needs to be an incentive for making people part of their salaries into super." No one ever wants to focus on the actual purpose of superannuation. Quite simply superannuation is part of a wider system which designed to assist people to achieve their optimal pattern of consumption over their life. One concern being that people will over-consume in their earlier years and so not accumulate sufficient savings to fund their consumption in retirement. We have decided to address this potential problem by making it mandatory to allocate a specified proportion of your salary to superannuation. Another option would have been to leave the choice in the hands of the individual but to offer them incentives to make contributions to superannuation. You do not need both- i.e. you do not require incentives to encourage people to do something that is mandatory. Well, you say what about the need for incentives to encourage people to make contributions beyond those required. This might be a good idea if the mandatory contributions proved inadequate, but this is definitely not the case. Several studies have found that a contribution rate of 12% is already well beyond that required to achieve their optimal pattern of consumption. Hence, I question why provide tax incentives to encourage people to accumulate savings "well in excess of what they will ever need." No there is no case to provide tax subsidies and certainly not ones that are to the detriment of the poorer amongst us while delivering big time to the wealthiest. Unfortunately, the proposed change will be inconsequential reducing the overall cost of the tax subsidies by less than 2% but realistically the ballot box implications of doing anything more are so great that taking small chunks out of the tax subsidies are about as good as we can ever hope for.

"optimal pattern of consumption over their life":
or optimum pattern of saving?
Both lead to maximising young saving and old spending.

Not what Charmers is after.
He wants to reap more tax from tall poppies.

No tax on unrealised gains in superannuation ...please convince me how this will ever be true.

Commentary on this latest effort by the disconnected elite in the Canberra bubble does seem to recognise that TSB presently captures unrealised capital gains that will be tested to decide whether the 3M or 10M additional tax thresholds have been breached and whether additional tax will be levied pro-rata on actual super income.

As an example consider a parcel of FIXED RATE bonds of say duration 7-10 years purchased when coupon was about 6% and how that $100 face value bond should experience a rise in BUY/SELL capital price as general interest rates drop below 6%.

For an initial TSB of less than the $3M (now to be indexed in lumpy step amounts like the Transfer Balance Cap) this parcel of bonds with rising BUY/SELL capital price may lift the end of year TSB above the additional indexed tax thresholds, with additional tax then levied pro-rata on actual super income.

All else being equal, this additional tax scenario will continue until the bond parcel approaches maturity when BUY/SELL capital price should drive back to $100 face value, but in the interim, it is still unrealised capital gains that has been relied upon to determine the applicable super tax brackets on actual income received.
If held to maturity for income, there is never a capital gain with the TSB again returning to less than $3M.

A similar situation might be imagined for:

a) Capital Index Bonds where income is calculated on the original $100 then indexed for inflation but actual gain in capital is not paid until SELL or maturity.

B Low coupon bonds purchased for less than $100 face value then experiencing a lift in BUY/SELL capital price when the general interest rates are dropping

For those that might have the ear of Canberra; please stop trying to work with Canberra's convoluted multi-letter acronyms and insist on starting with a clean slate we might all comprehend.

I understand the concern and self interest in holders of extremely large super balances, but I suggest we go back to ProfessorRon Birds final comments, reread them, then read them again.
Cost of tax concessions to help build these huge balances $50 billion. Taxes saved by super pensions negating gov pension $10 billion. Percent of government revenue used to provide tax benefits to super= 7%.
It’s simple maths and it’s unsustainable, and I sure don’t want my children and grandchildren shouldering an ever growing tax burden to sustain massive taxpayer funded wealth transfer schemes above and beyond what anyone should considerer an appropriate amount of subsidised super for a very comfortable retirement.

"It’s simple maths and it’s unsustainable":
Yes, do nothing and the loathed / envied large super accounts will pass out of the python naturally.
Limitations on contributions and mandatory withdrawals will make large accounts exceedingly rare.
The ship would right itself.

What a mess superannuation/retirement policy has become.

It seems to me the major reason is that the Parliament - our leaders and bureaucracy - do not properly legislate or regulate retirement policy, consistent with its stated intention.

Any laws related to a national policy should adhere to the declared intention of that policy.

The declared intention is stated as:

“to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”

So how do the proposed changes fit inside this declared policy intention? Surely that is the test.

Without a “reasonable asset test” and a “reasonable benefits test” then the answer is obvious - they don’t.

I feel it's a bit of an overreaction to suggest that the individuals who have very large super balances are now being "punished". Those lucky enough to have the means, took advantage of the rules as they existed to contribute large sums of money into an ever more generous taxpayer subsidised scheme. Many years on, it is obvious the scheme is not working as intended and in effect, for some, is looking more a taxpayer subsidised inheritance scheme. As Keating himself stated "the purpose of superannuation was to ensure that Australians could enjoy a dignified and secure retirement without over-reliance on the Age Pension".
With the introduction of the 40% tax for balances over 10 mil, those individuals with very large balances have been advised that hey, you've had a pretty run, but that very generous taxpayer funded scheme is now being limited. No one is being asked to give back the decades of tax concessions.

Whilst these amendments are welcome, nothing has been said about taxation of existing unrealised gains (they were quarantined when the pension limit was introduced).

Also, nothing I have read says much about the valuation of defined benefit pensions. My understanding is that they are required to be valued as per Family Law requirements, however this is complex and costly. For example ComSuper charge $170 just to provide the information for you to then get someone to do the calculation. I have also not read anything about how often this calculation needs to be done. Surely super funds should be required to provide the value in their annual reporting if this is going to be required on an annual or even 3 yearly basis.

Can anyone provide me with more details?

Unless you are Scrooge McDuck, Mr. Krabs or Montgomery Burns, savings are only a means with consumption being the end objective.

It may be news to some people, but tax subsidies come at a cost and result in the government having to raise more revenue from other sources and/or reduce their expenditure. The tax subsidies associated with superannuation are both inequitable and serve no useful purpose. Hence reducing them is to the net benefit of the whole community (of course, with the exception of the "tall poppies").

"savings are only a means with consumption being the end objective.":

Two sides of same coin because:
SaveRate = Save / Income
SpendRate = 1 - SaveRate

'Spend what must, save what can.' or 'Save what must, spend what can.'

"The tax subsidies associated with superannuation are both inequitable and serve no useful purpose.":

Reduced tax rates incentivise enterprise, especially for the Tall Poppies whose taxes, saving and spending pay for almost everything, including savings free, tax free, risk free Age Pensions of others.

Economic fertiliser.

I disagree with your comments Andy. Many employees are paid a total package amount rather than a salary plus super.

As an example, someone might be employed on a 200k annual package. The employer would deduct super at the mandated amount from this package and then pay the employee a taxable salary based on the remaining part of the package.

If the government increases the super contribution rate, then the employees additional super contribution would just be deducted from their $200k total remuneration package. Their total package wouldn’t automatically get increased.

This is a very common remuneration structure in finance and other areas.

@Ron Bird, "The tax subsidies associated with superannuation are both inequitable and serve no useful purpose."

The purpose the tax subsidies serve is to advance the goal of the superannuation system, namely ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’.

I think you want to argue that the tax subsidies are inequitable for some people (high earners or people with high super balances) and equitable for others (people with low super balances).

The super system (other than these latest changes) does not make that distinction though. Compared to other governments around the world, facing severe pressures from a growing need to fund their retirement systems, Australia's is actually reducing that stress - https://www.superannuation.asn.au/media-release/new-report-superannuation-is-easing-pressure-on-the-federal-budget-and-cost-of-living/ -

"* Thanks to super, age pension costs are projected to fall from 2.3% to 2.0% of GDP over the next 40 years, compared to the OECD which is predicted to rise to 10% by 2060.
* Super helps people become less reliant on government support, increasing their economic independence in retirement, and reducing the tax burden on future generations.
* Super makes Australia’s retirement income system one of the most sustainable in the world, keeping government expenditure in check."

Part of that saving *to the government* is that higher income people never need to access the Age Pension, and are instead independently wealthy and support themselves.

If you compare the super concessions wealthy people receive compared to the concessions low superannuation people get, of course there is a stark difference. The more wealth you have in super, the more concessions you get, because the system has concessions designed into it.

It's exactly the same as comparing the amount of income paid by the highest income people compared to the income tax paid by all the lowest income people. Of course the highest income people pay much more income tax, because they have more income to be taxed. And the top 1% or top 0.1% pay much more. This difference accumulates and aggregates over a lifetime.

In both cases it's essentially the same system for the higher and lower income people, but the concession / tax is much higher because it's a larger amount of money involved.

So you get: wealthy people have massively more lifetime accumulated personal income tax paid to the government, receive more superannuation concessions, and draw no Age Pension. Lower income people have much less lifetime accumulated personal income tax paid to the government, draw an Age Pension, and receive less super contributions.

That is of course excluding any other benefits lower income people may receive over their life, e.g. receiving unemployment benefits while a high earner is paying taxes.

Wealthy people with high super accounts have put money into superannuation over decades, based on an understanding of rules of the game - including those superannuation concessions, what you call tax subsidies. I am sympathetic to the argument that it would actually be inequitable to change the system on them now, beyond the kinds of changes put forward for high super balances in this current change (and remember, the argument the government is using for driving these changes is not equity, it's sustainability of the system).

You can slice and dice the equity story in different ways, but I don't think you can just claim that superannuation concessions are inequitable without first putting forward some sort of argument as to why.

@Lauchlan,

Going back to my original comment:

"....carving out industry funds from having to account for the new tax thus saving money for members."

I don't begrudge people accumulating wealth if that's what floats their boat. I do believe that the vast majority of people in Australia could live a very comfortable retirement on a super balance of less than $3m (indexed).

So if a person wants to accumulate >$3m (indexed) in super then let them do it via a SMSF and leave the industry funds for members holding less than that amount.

I agree that SMSFs and APRA-regulated funds should be treated differently. I think that's where a lot of the confusion has stemmed from around Chalmers' original proposal.

Taxing unrealised capital gains is absolutely objectionable (to me) in an SMSF fund, where individual assets are bought, held, and sold.

But taxing unrealised capital gains might (or might not) be an appropriate shorthand formula for taxing capital gains in an APRA-regulated super fund that holds a whole range of assets on behalf of members without specifically linking each asset purchase or sale to a member. It might be a better way to think about how APRA-regulated super funds operate and how best to tax them. I don't know - I don't run such a fund and I'm not a tax expert, and the funds can provide their own consultation feedback. But the obvious point to me is that SMSFs and APRA-regulated funds are completely different kinds of entities, operating differently (it's also a little bit more complicated, because some APRA regulated funds have member direct investment options, which presumably should be taxed more like SMSFs because the individual members buy and sell assets).

That said, I don't see any particular case for making the limits of how much super you can hold in an APRA-regulated fund different to how much you can hold in an SMSF. In either case the objective is the same - to provide for a good retirement for Australians while managing the government's budget so it doesn't blow out with population growth, like other countries are doing. Which form of super fund is used doesn't really seem to change that objective to me.

If there's a hard cap for how much can be in super, that's for the government to decide as a policy matter. They seem to have settled on $10M in practice, which seems more than defensible to me, with accounts over $3M paying more tax.

To your point about people's retirement, the "traditional" retirement planning method is to use the Bengen 4% rule. If you want to retire on a budget of $100K p.a. as an individual, without running out of money and falling back on the Age Pension, you'd need $100K/.04 = $2.5M in retirement capital. If that income stream was from super, that would be a tax free $100K p.a., so maybe equivalent to an income of $120K or $130K or so before tax. For someone who owns their own house I think you're right that most Australians would consider that a comfortable retirement. If they don't own their own house, they might need to allow say another $24K a year in their retirement budget for rent, but $100K p.a. can still accommodate that.

But if someone is a high earner with say $250K p.a. or more base income (and therefore contributing at least the maximum concessional super contribution of $30K each year) they might have different ideas around lifestyle and retirement budget. They have every right to plan for that retirement under the super system, and make super contributions accordingly. And they would keep in mind that as part of the top few % of income earners they helped contribute around 30% of the total personal income tax take each year, and that they are saving the government from ever having to pay them the Age Pension. So the argument about tax concessions needs to be looked at holistically - because they have more wealth in super they use more super tax concessions, but they never collect Age Pension income, which kind of mitigate each other.

But that's a policy question, of what superannuation is for. It's certainly open to informed debate and different values.

My comment starting "I agree that SMSFs and APRA-regulated funds should be treated differently" was meant to be in reply to @Trevor's comment starting with "@Lauchlan, Going back" - it somehow became a top level post instead. I guess this one might too.

"there needs to be an incentive for making people part of their salaries into super":

Increase income tax would do. Abolish tax on imaginary (inflationary) returns would also do.

There have been a number of comments on the treatment of capital gains.

There was no mention as to how the retrospectivity of capital gains would be dealt with. Gains will have accumulated to the commencement date of Division 296 under the assumption of a 15% tax rate. It would seem fair therefore, to reset the cost base at the date the new rules commence, applying the new higher rates only to gains realised thereafter, with 15% applied to gains accrued prior.

And Meg mentioned the one-third capital gains tax discount. Again, retrospectivity would suggest that it shouldn’t be removed for the under $3m portion of long-term gains. And given that, it would be reasonable to expect it to be retained at the higher balance tiers for consistency. That is 20% and 26.7% for the 30% and 40% tiers respectively.

I know that I won’t be taking any chances on this one! Currently with all amounts in pension phase but rapidly approaching the $3M balance I will be making strong efforts to crystallise long term large gains well before the start date. Effectively if the cost bases get reset over time then all well and good.
Currently as no tax is payable on any of the gains then resetting a cost base could not be seen as tax avoidance. It can also be disguised a little to make it not so obvious…

Sorry just to be clear. The 20% and 26.7% rates are 'effective' rates on long-term gains, after applying the 30% and 40% tax rates to the two-thirds gain. They're not explicit rates.

Thanks Tony. Let's hope the retrospectivity and the CGT discount play out as you expect. :)

My question is: how will this treatment of capital gains apply to the up to $2M of super moved into a super pension account? Will this be tax free, at the 33% discount rate, or something else?

Lauchlan, I would expect you would first apportion two-thirds of the gain between the pension and accumulation accounts. The non-Div 296 tax component then being 15% of the accumulation portion (and 0% of the pension portion). Then overlay with the Div 296 tax, being 15% of the two-thirds gain, multiplied by the proportion of the TSB above $3m. And if done fairly, the gain in the Div 296 component will have been re-based.

A numerical example:

- Div 296 implementation date = 1 July 2026
- TSB = $4m, pension = $2m
- Realised CG = $400,000 (post-1 July 2026)

Two-thirds of the gain = $266,667
Accumulation portion = 50%, pension portion = 50%

Non-Div 296 tax component = 15% x $266,667 x 50% = $20,000

Proportion of TSB above $3m = 25%

Div 296 tax component = 15% x $266,667 x 25%= $10,000

Total tax = $30,000

With re-basing:

- Assume half the gain was unrealised at 1 July 2026 ($200,000 of $400,000 total)

Div 296 tax component = 15% x 25% x $133,333 = $5,000

Total tax = $25,000

The $5,000 difference represents the retrospective element.

Thanks Tony.

That sounds complicated to me.

I'd have thought it would be easier to just

1. apply no capital gains tax within the pension account (as before) and
2. tax the capital gains made in the non-pension accumulation account based on whatever the total superannuation balance is, and how that dictates the formula for CGT.

e.g. if the total super balance is $4M, and $2M of it is in the pension account and $2M in the accumulation account, and the accumulation account sells an asset for a capital gain of $400K, then the total superannuation balance is $4M, the amount above $3M is $1M, and the formula is that $1M/$4M or 25% is above the $3M and $3M/$4M or 75% is below $3M. Then 25% of the $400K is taxed at 20% and 75% of the $400K is taxed at 10% for a total tax of 100x20% + $300x10% = $20K + $30K = $50K.

If any asset is sold from the pension account, it attracts 0% CGT.

I ignored the stepped up cost basis in the above because I personally think it complicates things. I think it's easier to give SMSF holders a few years' grace period to decide what they want to do with high value assets they've held for a long time (during which the current 10% CGT applies) and then from that end of grace period date go ahead and charge the new CGT thresholds for $3M and $10M account balances.

Hi Lauchlan, thanks for the questions, they really help.

Even though you may have a pension account and an accumulation account, they’re both part of the same super fund. The fund owns the assets, not the member accounts. When the fund sells an asset, it’s the fund that realises the capital gain, not one account or the other. You can’t dictate which account sold the asset, so the proceeds are apportioned between the pension and accumulation accounts (which are really just notional accounts for tax purposes). And it’s not just gains, all of the fund’s investment earnings are apportioned.

@Tony Dillon,

I am not super-familiar with how SMSFs operate. But re "Even though you may have a pension account and an accumulation account, they’re both part of the same super fund. The fund owns the assets, not the member accounts. When the fund sells an asset, it’s the fund that realises the capital gain, not one account or the other." - yes, but I thought they had seperate accounting. So if an asset is bought and sold for retirement, for example the accumulation fund holds growth stocks and the pension fund holds dividend stocks, then the fund could buy and sell growth stocks for the accumulation fund without impacting the pension fund, and vice versa with the dividend stocks. And if you have seperate accounting, they'd have seperate tax obligations. Does it work differently to that?

@Tony Dillon, where you write "Even though you may have a pension account and an accumulation account, they’re both part of the same super fund. The fund owns the assets, not the member accounts. When the fund sells an asset, it’s the fund that realises the capital gain, not one account or the other. You can’t dictate which account sold the asset" - my understanding was that it's one fund, but with different accounting for each account.

So if a single member, in an SMSF they created, had an accumulation account with $2M in it and transferred $1M to a pension account and kept $1M in the accumulation account, from an accounting point of view (not a fund point of view) those $1M of assets would be transferred from the accumulation account to the pension account. It could be transferred in a variety of ways - just move the assets from an accounting point of view from one bucket to another bucket, or sell all the assets in the accumulation account and buy new assets for the pension account, or another creative way.

i.e. each account, the accumulation account and the pension account, would have specific assets associated with it.

So the asset allocation for the accumulation account may have been, for example, all growth stocks, but the pension account asset allocation might be all dividend stocks. And for tax purposes, each account would be accounted for differently.

If it didn't work that way, all the tax for the growth assets and defensive assets would be jumbled up between the two different contexts - the two different accounts. It makes more sense to have seperate asset allocations for each account, the accumulation and pension accounts, and then tax each account - with their different asset allocations - differently, due to one being in the pension phase.

Is that not how it works?

Lauchlan, Yes an SMSF can allocate specific assets to the pension and accumulation accounts for reporting and investment strategy purposes. But from a tax perspective, the fund is a single taxable entity. Unless the fund is eligible to use the segregated method, and you can’t when a fund has a mix of accumulation and pension interests, the tax exemption is applied across all income according to an actuarially determined percentage (proportionate method).

@Tony Dillon,

Thanks. Re "But from a tax perspective, the fund is a single taxable entity. Unless the fund is eligible to use the segregated method, and you can’t when a fund has a mix of accumulation and pension interests, the tax exemption is applied across all income according to an actuarially determined percentage (proportionate method)." - this is all new to me, I haven't dug into the weeds on this before. I just assumed it would be segregated if you have a mix of accumulation and pension assets.

I googled a little, to look at sites like https://smsfaustralia.com.au/segregated-assets/ it seems like a mix of accumulation and pension assets is *precisely what the segregated method is designed to support* e.g.

"Assets are considered to be segregated current pension assets when segregated to a specific member account or a member pool rather than assets from the general investment pool shared by all members. The income from those assets supporting retirement-phase income streams is exclusively added to the member account or to a pool of members which can include a common group of members with common goals i.e. pension members vs accumulation members.

No tax is payable by a SMSF in relation to the income earned from assets which are segregated to a pension account which is in retirement phase and the SMSF is entitled to use the segregated method ...

During accumulation phase when members are building wealth for retirement purposes assets are generally not segregated but are pooled for the general benefit of all members. The income generated from those assets is allocated to each member in a fair and reasonable manner."

If it's not the case that this is exactly what segmentation is for, could you point me towards a site that explains this clearly? And if it is not the case, that would be bizarre, and it would seem to me that SMSFs would need some reform. Segmenting pension accounts from accumulation accounts is an obvious use case for an SMSF.

@Tony Dillon,

OK, it seems that this is because of the disregarded small fund assets rule - https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-administration-and-reporting/exempt-current-pension-income#Disregardedsmallfundassets1

That makes no sense to me. I would have thought it would be easier just to segment it than to require people SMSF funds to get an actuary involved.

Lauchlan, it’s a bit odd. The ‘segregated’ label just means all your fund’s assets are supporting pensions, so you don’t have to get an actuarial certificate to tell you that you’re in 100% pension mode. A bit of a circular rule I know, but there you go.

Tony, right, but from both a practical and cost perspective, if assets in pension phase are tax free, to me the easiest way to handle the difference would be to segment the pension assets from the accumulation assets, do the accounting (including tax) on each account type, and then ripple that up to the top-level fund reporting and fund tax obligations.

I know nothing about why it may have been designed otherwise, but it certainly seems like it could be simplified in this respect.

Tony I seriously doubt that they will rebase the capital gains to date when the new tax starts. After all they don’t tax you on the gains made up to the end of the accumulation account before it becomes tax free, thus all those gains can be crystallised in pension phase with zero tax.
Allowing one without the other couldn’t be justified. It’s also like taking gains in any tax year outside super the net tax is calculated on your current marginal tax rate.
Thus my previous comment that I’m not waiting around and will be crystallising as many of my large gains as possible while I know that zero tax will be payable.

Mark B, you may be right in that they probably won’t re-base gains, but they should. Investors make investment decisions under a set of expectations. To then have a higher tax rate applied to gains that accrued prior to the change breaches those expectations, and a basic principle that tax policy should be prospective, not retrospective. Even worse is when this happens in a compulsory savings environment. Things like this undermine confidence in super as a long-term means of saving for retirement. Governments should be trusted not to change the rules on income already “earned” under a prior system.

I agree with what you’re doing, do your own re-base if no advice is forthcoming close to the implementation date. As long it’s not too onerous to do so.

Tax on super was already complicated. As the comments here show, these changes make it even more complicated. It's still not clear if the changes can be practically achieved.

“SMSFs and APRA-regulated funds are completely different kinds of entities,…”

They are not completely different. They are both investment managers, investing in assets on behalf of members and the manager (trustee) pays tax on the fund’s income and capital gains. In accumulation phase, the manager pays 15% tax on contributions and income and 10% tax on capital gains. The fund member NEVER pays tax on the fund manager’s taxable income, until now!

In pension phase the fund, in an APRA funds, is a completely separate entity (with separate unit prices) to reflect its unique tax status and the manager pays no tax.

In an SMSF, where part of the fund is in accumulation and part is in pension, the taxable portion is determined by the relative size of those member balances.

Not exactly true Jon. In 296 Mk2, a SMSF is very different to an Apra fund - notably a Smsf > $3m can determine exactly "when" Cap Gains are realised. A Smsf could also choose an asset mix that was heavily biased towards growth and minimal income - all tax deferred. Apra funds have nowhere near this flexibilty in our brave new world.

I would be staggered if Apra accounts > $3m dont move to Smsf's

Are they plans to increase the TSB from current $500.000 to $1.000.000 by July 1st, 2026, to enable the 5 past unused concessional Super payments? Would like to get some further facts around this 'rumour' - my SMSF accountant has not heard about it, but my ChatGPT indicates those are the plans. Will be a game changer - you pay 15% - but can deduct the full amount (upto balance the past 5 years) and deduct to your marginal tax rate. Looks like a must do (if cash flow allows for it). What's your professional thoughts?

I think that would be great if true. :)

The objective is to get people to a good retirement, and being able to use these additional unused concessional super caps would be really helpful for them ... particularly for Gen X people who went through their working careers with lower mandatory contributions than the current 12% (it started off at 9%) and who therefore have less in their super than Gen Z might have at an equivalent stage in their career (and super fund balance) trajectory.

And (lesson to Jim Chalmers) the $500K should have been indexed anyway. As should the personal income tax brackets.

I'd tend to trust your SMSF accountant over ChatGPT though, unfortunately.

To help answer the question re taxing gains pre 01/07/2026, the following of from the transcript. acrewed is technology misspelling accrued.

the third area is to find the best way to adjust the treatment of capital gains acrewed prior to the start of these new arrangements

Meg Heffron says
"She also has questions about how the discounting of capital gains will be calculated. Typically, super funds don’t pay tax on the whole capital gain when they sell assets owned for more than a year – there is a discount of 1/3rd. Whether this discount remains is unclear. "

So, we could end up with a situation where someone has $4m in super, having $2m in pension and getting a $100k capital gain, of having zero tax on half of it (doesn't matter if there is a discount or not, since it is zero tax rate), 15% tax on two thirds of the $100k on a quarter of it ($1m out of $4m total) and an additional 15% on a quarter of the $100k profit (with no discount).

Of course, the government could slip thru a slight of hand, where the discount on all super capital gains is removed (that wouldn't be a surprise would it??)
Three different tax rates

I’d be interested to know if there are any retail or industry superfund executives out there who know how they are going to administer this change in the section 296 proposal? As others have commented, it seems that industry funds could handle it readily under the original proposal but now it seems complicated for funds that simply use unit pricing to estimate a member’s share of an investment option’s value, without separating that value into what is unrealised and what is realised in terms of capital gains. That is, the unit price is a single number for each investment option. And it’s perhaps even more complicated for members who switch frequently during a year, or have other transactions buying or selling units at different prices during a year. Anyone out there in retail or industry fund land know how they’re going to handle this?

Like Professor Ron, I would prefer to have freedom of choice for super and, based on my own experience, the ability to withdraw substantially for either initial or upgraded home residence. However, grudgingly, the benefit of ensuring a base for retirement leads to acceptance of compulsory super. Having got that far, two things follow-it doesn’t need incentives, and the system should fairly mesh with the overall taxation system. So, contributions from salary to remain mandatory, but not deductible for salary tax, and super earnings, even if a standard super earnings discount of 15%, to be included with total earnings -salary, other investment etc for one individual annual tax return. Such a system would have significant budget savings, ideally to be used to improve access to the age pension, particularly for rental users. It might also lead to better recognition that 12% contribution rate is not required, the Henry report at 9% being still the model in my mind. Wait for the clamour from industry super as it would be forced to provide a proper individual super account.

If and it is a big if, 33% of those impacted are in Appra funds they would be wise to move that money to SMSF's. The big Industry and Retail funds will be "unable" to accurately attribute "earnings" to each account and that, in turn, will lead to some ATO approved black box algorithm.

[The original 296 brain snap had no such problem with the use of TSB as a prixy for earnings]

If you are over $3m in a Appra fund, be very, very wary would be my advice!

Professor Bird saying the age pension savings today as a result of the super system are way less than the concessions given misses the fact that the first retirees to have had SG all their working life will turn 67 in the 2040s.
It is relevant that many with the very large super balances also got free uni.
Unrealised gains issue was covered in Chalmers announcement.