Superannuation, Tax

Super tax details a mixed blessing

superannuation earnings tax

A fact sheet outlining how the government will further tax earnings in superannuation balances over $3 million contains mixed results for SMSFs.

The government has released a fact sheet detailing how it intends to use a member’s total super balance (TSB) to apply the tax on earnings on superannuation balances exceeding $3 million, which has met with a mixed response from the SMSF Association.

The fact sheet contains a three-step method that calculates the difference between a member’s TSB for the current and previous financial year, adjusted for net contributions and withdrawals, to calculate earnings in a financial year.

The proportion of earnings above $3 million is then calculated by dividing the TSB in the current year minus $3 million by the TSB in the current year, with the tax liability calculated as 15 per cent multiplied by the earnings multiplied by the proportion of earnings.

The fact sheet noted fund members will be notified of their tax by the ATO and have the choice of paying the earnings tax out of pocket or from their superannuation funds, and can elect which fund will pay if they are members of more than one fund.

SMSF Association chief executive Peter Burgess said the information in the fact sheet was a mixed blessing for SMSFs.

“The good news in this fact sheet is that it means super funds, including SMSFs, will not be required to calculate the earnings attributable to the member’s balance above $3 million,” Burgess said.

“The ATO will use a prescribed formula to calculate the proportion of total earnings which will be subject to the additional 15 per cent tax.

“Negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.

“On the debit side, the ATO will be using an individual’s TSB to calculate their earnings, which means it will include all notional (unrealised) gains and losses. This essentially means some members will be paying tax on unrealised earnings, which is highly unusual.

“Our preferred approach would be for the ATO to do a calculation of ‘notional earnings’ using a similar approach to the existing excess contributions tax regime.”

The fact sheet noted TSBs in excess of $3 million will be tested for the first time on 30 June 2026, with the first notices of a tax liability expected to be issued to individuals in the 2027 financial year.

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