Question marks still surround revamped super tax despite government U-turn

The federal government's U-turn over the more contentious elements of its superannuation tax overhaul might have been widely welcomed, but it is still facing a number of questions over the revised laws.

Economists almost unanimously welcomed Treasurer Jim Chalmers' announcement on Monday that the controversial plan has been reworked so that unrealised gains will no longer be taxed.

A second threshold of $10 million will also be established, on top of the already-touted $3 million, at which accounts will face a 40 per cent tax rate on any earnings, and the reform won't come into effect until the 2026-27 financial year (meaning tax returns filed after July 1, 2027, will be the first to be impacted).

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Fund managers and financial advisors, though, are awaiting the release of the draft legislation to clear up a few questions they have about the changes.

Chief among them is whether the higher tax rates will apply to gains made before but realised after July 1, 2026, or whether the new laws will only take into account the increase in the value of an asset from that date.

"A key feature of the 'old' version was that it only ever taxed growth after the start date of the tax," Meg Heffron, the managing director of self-managed super fund consultants Heffron, wrote.

"We will need to see the detail to know how the new version will work. And the difference is important."

She gave the hypothetical example of someone who held an asset in his fund that had grown in value from $2 to $4 million before the new laws come into effect, before gaining an extra $500,000 and being sold during 2026-27.

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"Under the old system, the 'earnings' captured for that asset in 2026-27 would have been $500,000 ($4.5m less $4m)," Heffron said.

"Under the new system earnings, will the earnings be the same or will they be based on $4.5m less $2m (the actual realised capital gain)?"

She also highlighted uncertainties around pensions, how total superannuation balances are calculated, and the capital gains discount for super as other important unknowns.

"The devil will be in the detail here… the (government) fact sheet talks conceptually about aligning the definition of earnings to normal tax principles and it being based on taxable income," she said. 

"That doesn't necessarily guarantee the discount will be taken into account. If we had to speculate, we'd say it probably will, but we'll be watching out for that."

Chalmers on Monday said the government will undertake consultation with the industry before settling on the final model.

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Coupled with an accompanying boost for low-income earners, the treasurer said the reformed superannuation changes will make the retirement savings system fairer.

"Fourteen times more people will benefit from the low-income super changes than will be impacted by the better targeted tax concessions," Chalmers said on Monday. 

"This is a fairer superannuation system from top to bottom."

And while Heffron said there "will be some losers" from the changes, Chalmers said he was entirely comfortable with people with more than $10 million in super – less than 0.1 per cent of the wealthiest accounts – losing out.

"The average balance for someone who's got more than $10 million is $19 million," he said.

"They will still get a tax concession, I think of $97,900, but they were getting a tax concession of $266,000. That's just one example.

"But really what I'm saying there is there is no good reason for people with hundreds of millions of dollars in super to get the same kind of tax concessions as people with smaller balances, and that's what this change reflects."

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