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New Super Wealth Tax: Navigating the Turbulent Waters Ahead

Updated: May 9




As we approach July 1, 2025, a new tax measure will commence, targeting the superannuation earnings of individuals with balances exceeding $3 million. Known as the Super Wealth Tax, this policy, according to Treasury will potentially affect only 80,000 people - like our farmer in this picture. So why is he smiling - find out later!


Understanding the Tax Mechanism

The Super Wealth Tax applies only to earnings on balances over the $3 million threshold, effectively raising the headline tax rate on these earnings to 30%. The tax is calculated based on the growth of the Total Superannuation Balance (TSB) from the previous financial year, adjusted for contributions and withdrawals - these are not realised gains but unrealised gains . Treasury has provided the following examples:

  • Warren: With a superannuation balance growing from $4 million to $4.5 million in one year without withdrawals or additional contributions, Warren faces a tax liability of $24,750 on his earnings.

  • Carlos: Retired and with a significant super balance increase from $9 million to $10 million, Carlos would incur a tax charge of $120,750.


These examples highlight how the tax burdens could vary significantly among those affected.


Major Concerns with the Tax

While designed to target only the wealthiest superannuation members, this tax raises several concerns:

  1. Complexity and Administrative Burden: The mechanism for calculating taxable earnings on superannuation accounts is not straightforward and could lead to potential errors and disputes - particularly around valuations of property, farms in particular and unlisted investments.

  2. Market Impact: Large, taxable growth might compel individuals to alter their investment strategies, potentially leading to less optimal investment decisions aimed more at tax avoidance than at achieving the best financial returns.

  3. Equity and Fairness: There's an argument about the fairness of significantly increasing tax rates based solely on unrealised gains, especially as it could affect retirement planning strategies that have been in place for decades. And will it spread to other investments such as residential property?


Proactive Strategies - why our Farmer is happy

Given the significant impact this tax could have on affected individuals, proactive planning is essential. At Abbott and Mourly Lawyers, we recommend the establishment of a Family Protection Trust coupled with strategic financial instruments. These tools can provide a robust foundation to mitigate the impact of the Super Wealth Tax while ensuring compliance and optimising tax outcomes. And for the Farmer whose SMSF may be asset rich and cash poor, not having to sell the farm to pay the tax is an ideal outcome.


Conclusion

As we edge closer to the implementation of this tax, it is crucial for those potentially affected to review their superannuation strategies and structures. For personalised advice and to explore effective strategies such as the Family Protection Trust, consulting with specialised legal and financial experts, such as Abbott and Mourly Lawyers, is highly recommended. This approach ensures that your retirement savings are protected and optimized against the evolving legislative landscape. Contact us - nush@abbottmourly.com.au

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