Treasurer Jim Chalmers’ second budget contained only two significant superannuation measures, but both are important.
One will help everyday Australians get the super to which they are entitled, and the second will start to raise significant funds from wealthy super fund members.
The first measure Dr Chalmers announced starts in July 2026 and will make it mandatory for employers to pay superannuation entitlements with wages. Currently super is required to be paid quarterly.
That means unscrupulous employers who don’t pay all or part of their super requirements are not likely to be discovered for at least three months.
Also, because employees don’t always know the amount of super they are owed on a quarterly basis, it is easier for part of their super entitlements to be held back.
Where it is paid with wages, employees become used to seeing their regular super payment every time they look at their salary payment, meaning they are likely to be alerted earlier if there is non- or under-payment.
Not only is the government going to demand super is paid with wages, it is going to arm the ATO with an extra $40 million annually to chase up super cheats among employers.
Industry Super Australia CEO Bernie Dean was positive about the measure, saying: “This budget delivers a big win for the three million mostly young and lower-paid Australians unfairly deprived of the super they’ve earned; and [it] will give them a better shot at building a nest egg for retirement.”
The government’s move was laudable and it is “taking the necessary steps to end the huge super rip-offs which [were] undermining the future economic security of too many women and others on lower incomes,” Mr Dean said.
The move was one of the most significant improvements to the super system in the past 30 years, he said, resulting in an extra $50,000 in the retirement balances of young workers because they would be able to work a lifetime without suffering super theft.
This measure will improve government revenues by $836 million by 2026-27, and because it will bring forward superannuation tax payments and ensure tax is paid on all super owing, that amount will not go to the government’s bottom line.
It will be more than outweighed by the loss of penalty interest the ATO charges under- or non-super paying employers. So, the ultimate bottom line effect of the measure will be a negative $285 million.
Hitting the big accounts
The other measure introduced that will also start from July 2026 is the doubling of taxation on earnings in superannuation funds with balances of more than $3 million.
Currently earnings in accumulation funds are taxed at 15 per cent but for the portion coming from funds above $3 million that will move to 30 per cent.
Although the equity of that move has been acknowledged by many in the superannuation industry, there has been concern over the way the profits will be calculated.
The government plans to simply measure the portion over $3 million for any fund of that size at the beginning of the year and then again at the end of the year. The difference of those two will be the profit.
That effectively means that unrealised gains will be taxed, effectively forcing super fund members to sell assets they intended to keep to pay the tax man.
“This will be a substantive change to our tax system that predominately relies on taxing realised gains,” said DBA Lawyers in a note to clients.
Single asset super funds to be hit
“You could have a business that operates out of a building worth $3 million owned by their self-managed super fund,” said Wayne Leggett, principal with Paramount Financial Solutions.
“If there is a good year in property and its value goes up 10 per cent the business probably wouldn’t have the cash available to pay the tax. It would have to sell the building,” Mr Leggett said.
Self-managed Superannuation Funds Association CEO Peter Burgess called for the government to extend the discussion period on the structure of the $3 million fund tax arrangements.
When the plan was announced in March only 18 days, including Easter, were allowed for the consultation process.
“That was simply insufficient time for the industry to fully identify all the issues,” Mr Burgess said.
The government expects the extra tax on big super funds to deliver the budget bottom line an extra $2.3 billion for 2026-27.
The budget measures do not come into place for three years but there are two thing super fund members should be aware of from July 1, 2023, Mr Leggett advises.
One is the move of the superannuation guarantee from 10.5 per cent to 11 per cent of salary.
The other is the transfer balance cap – the maximum balance allowed in a tax-free pension fund will rise from $1.7 million to $1.9 million.
Those retirees with more than $1.9 million will have to keep the excess over the cap in an accumulation fund.
The New Daily is owned by Industry Super Holdings
