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Super Changes: New Tax on high-balance accounts explained

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The Australian tax landscape is undergoing some significant changes. From tax cuts for workers to adjustments on student loan repayments and a brand new superannuation tax, there’s a lot to unpack. 

This guide will break down these changes, explain how they will be implemented, and who will be most affected.

Stage 3 tax cuts 

What willthe impact be for someone on the Australian average salary of approx. $90,000 per annum? 

The revised Stage 3 tax cuts were legislated earlier this year and take effect on 1 July 2024, for the 2024–25 income year onwards. 

Our modelling shows that an Australian resident taxpayer with a taxable income of $90,000 will pay $1,929 less tax in 2024–25 than they will in 2023–24. 

Who will see immediate benefits from the legislated Stage 3 tax cuts thattake effect on 1 July 2024? 

Any worker who is subject to PAYG withholding will see an immediate reduction in their tax withheld and an increase in their take-home pay from their first pay after 1 July 2024. However, those who pay PAYG instalments, such as sole traders, contractors and those who work in the gig economy and are not employees, will not see the benefit of the tax cuts until they lodge their 2025 tax returns and their final tax position for 2024–25 is determined. 

HECS-HELP 

The Government has agreed to cap the indexation applied to student loans to the lesser of the Consumer Price Index (CPI) and the Wage Price Index (WPI), backdated to 1 June 2023. This will wipe around $3 billion off the student debt owed by more than three million Australians. 

What willthe impact be for a student with an average HECS debt of $23,000? 

A student with a debt of $23,000 on 30 June 2023 will have around $1,030 wiped from their student loan. This will be provided in the form of an indexation credit against the loan balance. 

Who will benefitfrom the proposed measure to cap indexation on studentloans? 

The capping of indexation on student loans will benefit all Australians with a HELP debt that existed on 1 June 2023 by ensuring the growth in student debt from high inflation does not outpace wages. However, students who chose to pay off their loans in full before that date will not benefit from the capped indexation. Instead, these students will have their loans subject to the CPI increase of 7.1% instead of the capped rate based on the WPI rate of only 3.2%. 

While the proposed measure addresses the high inflationary impact on student loans, it doesn’t perennial issue of students’ loan repayments that are deducted from their take-home pay during the year being applied to reduce their loan balances only after indexation has been applied for the year. 

Wealth Tax 

What willthe impact be for an individual with a superannuation balance of over $3 million

The Government proposes to introduce a new superannuation tax from 1 July 2025. Division 296 tax will tax at 15% the proportionate earnings on superannuation balances that exceed $3 million. The tax will be assessed not to the superannuation fund but directly to the individual who may request to withdraw funds from superannuation to pay the tax. The tax is worked out using a complex calculation on the movement in the individual’s superannuation balance during the year, which includes any unrealised gains. 

The Government could have increased the rate of taxation that applies to the superannuation fund (above 15%), but instead chose to impose a new and separate tax on the individual which, when combined with the tax payable on the taxable income of the fund, results in an overall higher tax take. 

Who will be affected by the proposed measure to tax earnings on higher superannuation balances at a higher rate? 

● Any individual who has a total superannuation balance of more than $3 million on 30 June 2026 will be subject to Div 296 tax. What is most concerning is that the proposed new tax will subject unrealised gains to taxation. This sets a dangerous precedent and is contrary to the well-established approach under the Australian tax system which brings to tax capital gains only when they are realised. 

● Individuals who do not have sufficient cash flow personally to fund the payment of the tax liability and who have illiquid assets in their superannuation fund, such as real property, will be particularly impacted. 

● Individuals could also find that significant selling costs could be incurred in realising assets to pay the tax each year (depending on the movement in asset values). 

● Individuals who pay the tax, then make a loss which can only be carried forward, will be impacted. 

● Also of concern is that the $3 million threshold is not proposed to be indexed. This means that, over time, more and more people will be subject to Div 296 tax, which seems inconsistent with the Government’s statement when announcing the policy that the measure will affect only a handful of people, just 0.5% of people with superannuation accounts. 

The tax news shared here is for informational purposes only and should not be construed as professional tax advice. Tax laws can change, and individual circumstances vary, so it’s crucial to consult with a qualified tax professional for personalized guidance. We do not assume liability for the accuracy or completeness of the information provided.

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