A new tax on super accounts above $3 million has been making headlines, with some (mostly Australia’s ultra wealthy) absolutely raging about it. And while yes, most Gen Z and millennials — aka you, our PEDESTRIAN.TV readers — don’t have more than $3 million in super, this new tax may impact you. At the very least, it’s something you should be across. Confused? We’ve got you covered.
What is the government’s proposed $3 million superannuation tax?
So, what is even changing here? Let’s take a teeny step back and get a sense of how our super tax system works.
Currently, the government charges 15 per cent tax on superannuation fund earnings (as in, the returns your super fund makes from investments, helping grow that humble lil’ balance every year). It applies when you’re still working and contributing your hard earned dosh into your account, which also adds to your balance going up.
However, this could all be changing with new laws due to come into effect on July 1, when people with super balances above $3 million will be taxed at a higher rate of 30 per cent on earnings, through an extra 15 per cent tax.
Treasurer Jim Chalmers announced the new tax rate back in 2023, describing it as a positive step towards budget sustainability and equity.
Technically, the law hasn’t passed parliament yet, but Chalmers has signalled the new tax rate will start on July 1 regardless. “It’s not unusual for tax changes to be legislated after a start date,” he told reporters.
How will the new super tax rate work?
Putting my creative cap on for a sec, let’s pretend I’ve actually got $3 million in my account, and by the end of the financial year, it’s sitting at $3.5 million. That means my super balance grew by $500,000, and for simplicity, let’s just say this comes entirely from earnings.
With the $500,000 of my $3.5 million balance sitting over the threshold — calculated here to be around 14 per cent of the total balance — that same proportion of the year’s earnings will be hit with the higher tax rate. Translation: I’d be paying roughly an additional $10,700 more tax than last year.
Another thing is, the new tax will apply to what’s called unrealised gains. These are increases in value of super assets (think shares or property), even if it’s just on paper and the fund hasn’t actually sold or “realised” the profit yet. This has been copping heat from critics of the reform, although the government’s reiterated it’s meant to be about budget repair, and fairness in the system (you know, with current tax rules being a little too generous, according to some experts.)
How many people in Australia will be affected?
Honestly, it’s only the very wealthy. According to Treasury estimates, roughly 80,000 people — or 0.5 per cent of the population — have super balances above $3 million. The average Australian has just about $150,000 in their super balance.
(If you want to get really nosy and/or jealous, Treasury also revealed that 17 people had more than $100 million in their super accounts, while one singular person had more than $400 million.)
You’d think people with $3 million in super wouldn’t care about paying a smidge more on their taxes. Unfortunately, you’d be wrong! They’re raging about it, which is why we’re all here talking about it.
So wait, how will the change affect young people?
Here’s where things get interesting, because while Australia’s rich folk are clutching their pearls at the thought of coughing up more taxes, there’s plenty of talk about the future trajectory of this super tax — and what it will mean for young Aussies.
One important thing to know about the super tax reform is that the $3 million limit is not linked to the Consumer Price Index (CPI), which measures the cost of goods and services in Australia. This means the threshold won’t increase as prices rise, so more people will be affected over time, according to the Institute of Financial Professionals Australia.
Right now, about 80,000 people are expected to be impacted. But modelling suggests that over their lifetimes, around 500,000 Australians could end up paying this tax as the prices and wages rise — and about one-third of these Aussies are currently under 30 years old.
According to modelling by AMP Capital, at least half of Gen Z will have $3 million or more in super by the time they near retirement, due to wage inflation and compound interest. (Honestly, sounds nice!)
In an example shared by AMP Capital’s deputy chief economist Diana Mousina, a 22-year-old on an average wage will cross the $3 million threshold by the time they turn 64. And in this very specific example, under the new tax brackets, that 64-year-old will be paying an additional… $5,400 in tax.
“The policy, as it stands, is trying to target wealth, and I’m not necessarily against that … but it just doesn’t make sense not to index the brackets,” Mousina told the Australian Financial Review.
“A $3 million balance in 40 years’ time is not the same $3 million balance that you have today. It doesn’t affect 0.5 per cent of the population, it impacts a much higher share.”
Meanwhile, according to policy think tank Grattan Institute’s Brendan Coates and Joey Moloney, Gen Z actually stand to be the biggest winners from the new $3 million super tax.
“Claims that not indexing the $3 million threshold will result in the tax affecting most younger Australians, or that it will somehow disproportionately affect younger generations, are simply nonsense,” they wrote in a piece published by The Conversation.
They state that, rather than being the biggest losers from the lack of indexation, young people will be the biggest beneficiaries as older, wealthier Aussies take on more of the burden of budget repair and an aging population, rather than letting young folk bear this alone.
“The facts speak for themselves: a mere 0.5 per cent of Australians have more than $3 million in their super, and 85 per cent of those are aged over 60,” they said.
“Even in the unlikely scenario where the threshold remains fixed until 2055 – or for ten consecutive parliamentary terms – it would still only affect the top 10 per cent of retiring Australians.”
They went on to propose the government should actually dip the $3 million threshold down to $2 million, and only then index it to inflation, arguing “there is no rationale for offering such generous earnings tax breaks on super balances between $2 million and $3 million.”
So next time your rich uncle’s debating the super tax at the dinner table, you now know what he’s on about — and can perhaps wonder if he’s part of the sneaky 80,000 Aussies actually affected by all this.
The post P.TV Explains: What Gen Z Needs To Know About The Tax On $3 Million+ Super Accounts appeared first on PEDESTRIAN.TV .
