Hey @feteguru just keep in mind the tax is not necessarily zero if your TSB is <$3M. There is already a 15% tax on any taxable income earned on Super that is still in Accumulation phase, i.e. taxable income earned on any super funds that are above the transfer cap or not earned by the growth of those funds that had been transferred to pension phase under the transfer cap (soon to be $2M).

Personally I don't think this article is particularly helpful as it overlooks some key issues.

You're definitely correct, as are Heffron, in suggesting you would still be most likely better off with the funds in Super and to pay the proportional tax on taxable income >$3M.

But as others have stated, more homework required by each investor and maybe bounce any strategy off your accountant well in advance of decisive action on excess funds or assets.

I usually find Meg Heffron articles worthwhile reading for anyone with an SMSF. However this article is from Oct 2023 and while the substance of the article is correct, a lot has changed from the perspective that this tax will be more complex than first thought. For example, the double taxation possibility whereby gains may end up being paid at 40% which would be much worse than company tax at 30% or even the highest personal tax rate of 23.5% (assuming CGT discount of 50%). I'm sure Heffron will have an updated article in relation to this so will watch out for it.

Thanks @feteguru

From my reading, the article you quoted doesn’t make it clear that any amounts withdrawn are added back in when calculating the effective balance for the financial year. So if the new tax comes in on 1 July 2025, and you have a balance over $3 million, you will still be subject to the tax - even if you withdraw an amount to get back below that threshold (assuming you have a positive return for the financial year, when you have a negative return the tax doesn't apply regardless of your balance).

Using the worked examples in the explanatory notes accompanying the new tax proposal, my initial thought is that the article you're quoting is answering a different question. The legislation is very clear that withdrawing amounts will not, in itself, remove your exposure to this tax.

As a side note: I 100% agree that withdrawing money and investing in your own name is not necessarily a good approach. I, for one, won’t be making any changes to my investment approach due to this new tax. The amount actually due to be paid is, in the scheme of things, relatively small. That said, I do appreciate the impact on those who hold fixed assets in an SMSF.

Disclaimer: The above is based on my reading of the explanatory notes. I could be wrong (probably am), and my maths skills would make a six-year-old cry. This definitely isn’t financial advice. DYOR.

Here's a good take (IMHO) from Morningstar:

https://www.morningstar.com.au/retirement/unconventional-wisdom-state-retirement-midst-super-tax-fight?user_segment=indinv&utm_source=eloqua&utm_medium=email&utm_campaign=ind_apac_au_en_2505_tf_n_n_morningnote&utm_content=morningnotefree_64015&utm_id=33114

I previously voiced concern that the 30% tax on balances over $3m will also result in another 10% tax when assets are sold (if asset held for over 1 year, otherwise 15%) so a total of 40% tax on a percentage of some funds. Now I hear that franking credit refunds is included in the assessable income for the 30% tax so it will result in a tax on a refund. Now that would just be ridiculous!

Ha @feteguru I read this article a bit different and my understanding of the proposed legalisation is also a bit different.

The explanatory notes, copy in the link below, susggest you can indeed pay the tax if your balance is below $3M at 30 June 25 IF your balance goes over $3M in the financial year. However, you will only be subject to pay the tax on the portion above the threshold. For example if you had 2.8M on 30 June 25 and then had $3.2M at 30 June 2026 the portion taxable is (3.2 - 3) / 3.2

So it is the 30 June 2026 adjusted balance that is the trigger. BTW I say adjusted as deductions and the like are added back into your effective balance for this tax calculation.

Disc: This is just my understanding based on the explanation notes, please look at the link yourself

No problem @feteguru

As I’ve outlined in my earlier posts, I’m not a financial advisor, I’m just chucking some words on a screen based on what I’ve read. So, with that in mind, I assume (like, assume - I don’t know 100% for sure) the references to 30/6/26 are based on the premise that the effective date for the new tax is 1 July 2026.

Although, from what I’ve seen, the government has suggested they’ll move forward with the legislation that has been tabled, which means an effective date of 1 July 2025.

Disc: The above is based on my reading of the paper in the link, I could be wrong (probably am), and my maths skills would make a 6-year-old cry. This definitely isn’t financial advice. DYOR.

Let them

And let me opt out of the system

More details in the article online (https://www.skynews.com.au/australia-news/politics/former-state-premiers-and-politicians-under-previous-pension-scheme-will-be-exempted-from-labors-superannuation-tax/news-story/666cc496e1e66d0403e6de5f6804e9c8):

> This is because it is a constitutional requirement to make certain individuals exempt from the tax, such as some former state office holders.

I'm not familiar with this exemption but it sounds like a general tax exemption is already in place for those office holders rather than being intended specifically for this new tax.

Hi @feteguru

There is some clarification needed on your question, as it’s not a simple yes or no.

If you end the year below $3M but made withdrawals to get there (say you started the year with $3.1 million, withdrew $400K, and had $200K in investment earnings, ending with a balance of $2.9M), then you’ll still be liable for the tax. This is because deductions are 'added back' when calculating your effective end of year balance. However, if you started with $3.5M and lost $1 in total from your investments (aka: ended up at $3,499,999), you would not be liable for the tax for that year as there also needs to be a net total gain on investments to trigger Division 296. In fact, you can carry over the loss to offset gains in future years.

IMO… when you calculate the actual amount of tax payable, even on very large balances, I’m not sure taking any drastic action is worthwhile. I certainly wouldn’t be withdrawing funds and investing in my own name. The tax advantages of staying in super remain significant. Although, in saying that, I appreciate that those with very large fixed assets in super may be in a different situation, it’s more challenging compared to those with more liquid assets, to sell some investments to cover the tax. But if it helps, the tax payment doesn’t need to come from your super account, it can be made from a personal bank account.

Disc: The above is based on my reading of the paper in the link, I could be wrong (probably am), and my maths skills would make a 6-year-old cry. This definitely isn’t financial advice. DYOR.

I didn'tt think about the double taxation. I'm still quite a few years away from being able to do anything so if my super somehow miraculously exceeds $3m in the near future I will just have to accept it.

Below is excerpt from the AFR.

"Peter Crump, a senior consultant in the private wealth division at accounting firm BDO, said that under the proposed policy, people would pay a total tax on unrealised and realised capital gains of 25 per cent.

This includes the 15 per cent on unrealised gains, plus the existing discounted 10 per cent capital gains rate for assets held inside super for more than 12 months.

It is slightly higher than the current maximum 23.5 per cent rate on capital gains for high-income earners for assets held outside super for more than one year. (Income such as dividends and rent would face a total rate of up to 30 per cent for the portion of earnings derived from super balances above $3 million.)"

If I was able to access my super and had a $3m plus balance I'm not sure what I would do. I actually think it may be fortunate that I can't do anything brcause if this passes the Senate, my prediction is that it will ultimately be reversed but for those that have already withdrawn their funds, I assume they won't be able to put those finds back in to their super fund.

This is mainly an issue for people with their SMSF mainly consisting of things like the family farm, or big business premises. The assets aren't liquid, the actual cash earnings are often seasonal and unreliable, and the government, State in particular, can arbitrarily jack up the valuations as they keep doing every year with residential property valuations. This is leaving aside the fundamental issue with taxing any unrealised gain.

For the average Super holder sure, it's not a particularly big deal, particularly if you focus on fully franked shares, the 30% is taxed already. $23k might not be a big burden, but it's still money that individual has worked for / earned. I for one don't think the government is doing a great job with the taxation they're getting already so I'm loath to give them any additional of my hard earned.

The devil is in the detail. What is the audit process for big (Union run, Labor donating) industry super funds with all their 'unlisted' assets? Also, it won't hit the ridiculously high 'defined benefit' superannuation of politicians, judges and the like. To get the $400k plus p/a pensions of some of those individuals you'd need well over a $3million balance.

It's just bad policy, and it's going to set a dangerous precedent.

Just for the record I don't have over $3million in my SMSF (yet ;D ).

@BigStrawbs70 thanks for posting that link. Very interesting reading the examples.

What surprised me was that you cannot avoid the tax by making withdrawals to keep your balance below the $3M amount. Any withdrawal amounts get added back into the total balance calculation at the end of the financial year for the purpose of calculating the tax liability.

By my understanding of the info online, that is correct @Byrnesty, at least in that year that you are doing the assessment. i.e. The purpose is to capture the growth of the fund, so withdrawals are added back in, and contributions are removed for the purposes of the calculation.

In regard to your post about 30% tax @BigStrawbs70 really only being 0.5% in one case and lesser in the other example, you may be missing that the existing 15% tax is still applicable for any taxable income for in the fund that is still in accumulation phase. Currently the cap for total contributions into pension phase being $1.9M rising to $2M next FY. Of course, that can grow to an infinite amount once rolled into pension phase and still have no tax applicable, but anything still in accumulation phase (so anything that was not originally put into pension phase under the cap {BTW my cap was $1.6M when I went to pension phase} remains in accumulation phase and pays 15% tax on any net taxable income.

As I and many others are pointing out (including @tomsmithidg), the biggest issue/s is not the fact that taxation on profits over $3M in TSB is bad, but that it is to be applied on unrealised gains annually and no indexing is currently applied.

@Byrnesty My understanding is that you have to withdraw your funds prior to 30th June 2026 if you want to keep it below $3m as the starting point is 1st July 2025 and the end point is 30th June 2026 to calculate the increase in earnings/gains. I'm not 100% sure though and it won't affect me at this stage but it will mean I have to keep a close eye on the value of my super close to the end of every financial year in case I fluke an incredible windfall from one of my specs :)

If this is true I'm guessing it won't proceed in the current form - from the australian:

Treasurer Jim Chalmers’ tax grab on the wealthiest Australians inside the super system will end up hitting millions of young workers inside the nation’s biggest industry funds.

Young workers, with modest super balances are set to be swept up in the changes that are targeted at super members with balances in excess of $3m.

About 60 per cent of younger workers default into big funds. And though they will have balances well under $3m they are still going to be hit with the same tax level of tax enjoyed by wealthy older members who have accumulated large sums over a lifetime.

“Ironically, lower balance members could be penalised by a tax that was only supposed to affect the wealthy,” says Chris Brycki, who runs the $1 billion Stockspot group.

Brycki explains this twist on the tax will occur because industry funds pool money with all investors taxed in the same way.

“This is all because it’s too complex for the big funds to calculate tax at an individual level,” Brycki says.

To play devils advocate here. what if the tax in unrealised gains has a positive benefit for small caps. A SMSF could invest in a volatile small cap when they otherwise wouldn't because if the price halves, they could get a tax benefit without any capital loss (unless they sell). So the pain we feel as small cap investors, when we buy a stock, watch it plummet and sit on a loss for ages, might have a secondary benefit.

Sounds like clutching at straws, negative gearing in a sense, saving money by losing money. It will conversely have the opposite effect when volatility rockets the other way.

The unrealised gains tax, is at best, a sneaky way to recoup funds for Budget costs. However, for people with a history of the work by Ron Paul and co, government spend perpetually into deficits on purpose and through a conflict of interests. Inflation is the hidden tax we all pay. A neutral budget will rarely be sought and only will be done so on the verge of a revolt from the masses.

Public servants vote Labor, manifesting more socialist jobs, creating more Labor voters, making socialism more entrenched, equating in govt funded everything.

The fly wheel is in full effect here in Australia and I have finally evolved from a young person to the grumpy old man on the porch. Ah well, I had a good run.