Get prepared for higher taxes on your super and if the Greens get their way, the tax torture will be even more intense!

Treasurer Jim Chalmers has legislation set to be presented in Parliament to up the tax on ‘super’ superannuation savers. However, he’ll need the Greens in the Senate to get his way, and they want him to hit the wealthy harder! And one of their demands is likely to be a tax on unrealised gains for big super balance accounts.

Right now, while the Treasurer dumped this proposed tax on gains (that are only really paper gains for a super fund), it was something he advocated until the backlash from investors, farmers and even Paul Keating made him change his mind on that subject.

However, Chalmers is still going after anyone who has done a great job doing what governments in the past forced us to do, that is, have super! It has to be one of the greatest slaps-in-the-face for those who decided to choose to build wealth via super, which was encouraged via attractive tax rates.

Well, for many Australians, those lower tax rates (for doing without their money until they retire) are about to go up.

This is what Dr Jim has cooked up in his bill:

1. Income on balances in someone’s super between $3 million and $10 million will go from 15% to 30%.
2. For balances over $10 million, the tax on income will be 40%.

The AFR’s Ronald Mizen captured what the Greens want with the following: “While the Greens support increasing the tax rate on high balance accounts, its MPs are angry about the decision to abandon tax on unrealised capital gains. They say it significantly reduces the effective tax paid by high balance accounts, including the top ten biggest self-managed super funds, which hit an average balance of $423 million in 2022-23.”

Wow! We are talking about some super savers when you find out that the top 10 biggest super accounts average $423 million. This has to be some of our great billionaires who got some really great financial and tax advice in the good old days before big budget deficits from huge spending treasurers meant super savers had to be targeted to reduce the government debt.

Given the Treasurer needs the Greens to get his tax changes through, let’s look at what they’re still demanding. Here goes:

1. The tax rate on income from super accounts above $10 million goes to 45%. The AFR says this would hit about 8,000 people.
2. They want to get rid of the 33% capital gains tax discount that super funds currently enjoy.
3. They also want the 50% capital gains tax discount reduced because they believe it has contributed to the house price gains that are shutting many people out of the home ownership market.
4. And they want unrealised gains on big super accounts to be taxed (that’s surfacing again!).

Mizen gave us a super history lesson reminding us that when Labor took a policy to curtail CGT discount to the 2016 and 2019 federal elections, “it explicitly excluded superannuation funds”. But then the budget was in a lot better shape.

So, that was then. This is now. And anyone with a big super balance will be watching this taxing affair play out in Parliament in coming weeks.

Of course, all changes to super are good for my financial planning business as we become more relevant. The irony of any changes to the tax on super could actually mean those thinking about selling their investment properties and putting the money into super to avoid any potential changes to the capital gains tax discount, now will be worried that a super tax trap is waiting for anyone who builds up their super!

The great US politician, inventor and writer, Benjamin Franklin made famous the observation that “nothing is certain in life other than death and taxes” and that rings very true today.