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Will your super fund be hit by the new super tax?
With new industry analysis forecasting at least half a million of today’s salaried workers will ultimately be hit, it is now clear the new super tax designed to capture very wealthy Self Managed Super Funds will go a long way further than many expected.
The unusual nature of the new super tax – based partly on paper gains – and the decision by the government not to index the entry threshold for inflation, means the ultimate number of people affected will be intensely debated in the months ahead.
But one thing is for sure. Apart from SMSFs, the funds that will be hit hardest by the new tax are those where average member balances are highest – especially those with a higher number of older and wealthier members.
Putting those key numbers – publicly available from the Australian Prudential Regulation Authority into a model – the Stockspot group ran the data for The Australian and the results predicted the funds most likely to be affected.
Those funds cover every conceivable type of accumulation super fund – from retail giants such as Colonial First State First Choice, to industry fund leaders such as Aware Super and corporate super funds such as Qantas Superannuation Plus.
Colonial is joined among the big retail names by Mercer Portfolio Service Super and Russell Investment Master Trusts, all popular funds among white-collar professionals.
Flanking the industry super giant AwareSuper (the biggest fund in the group with assets of more than $183bn) are Equip Super and NGS Super.
The fund with the richest average member account balance is Mercer Portfolio Service Super where the average balance is $354,000.
We already know the last time a tax was imposed on super – Julia Gillard’s unindexed Division 293 tax introduced in 2012 – was supposed to affect just 120,000 people. That number has risen beyond 500,000 taxpayers.
This time around the Albanese government under Treasurer Jim Chalmers has estimated the new super tax will affect just 80,000. But a Financial Services Council estimate released this week says the number will be 500,000.
Blake Briggs, CEO of the FSC, says: “The government should now consult on options that would not unfairly target future generations of Australians by introducing a new contentious tax.”
But the effect of the new tax will actually be wider than FSC’s 500,000 estimate because the nature of the new tax means younger people in big funds – especially industry funds – will end up paying for older and wealthier members in these funds.
As The Australian recently reported, the CEO of Stockspot pointed out that lower balance members in big super funds could be penalised by a tax that was only supposed to affect the wealthy. As Chris Brycki explained, this twist on the tax will occur because industry funds pool money with all investors taxed in the same way.
Looking at the list of funds, Brycki says: “Some of these funds are out there marketing to the broader mass market, and I’d say to consumers in this area you might want to be concerned because you’re going to be wearing the consequences of these older members with big balances.
“Better still if you are an older member in a big fund and you sell at the right time you may escape the tax altogether,” he adds.
“In effect, inside big industry funds, younger members will effectively be cross-subsidising older wealthier members.”
Deanne Stewart the CEO of the largest fund on the list, AwareSuper, recently voiced support for indexing the tax, suggesting: “I think for the generations to come it will be nice to see that.”
However, in relation to the direct affect on members of AwareSuper, the fund released a statement which said: “The majority of AwareSuper’s almost 1.2 million members are teachers, nurses, police officers, paramedics and other frontline workers, and less than 300 accounts contain balances over $3m.”
The list of 15 funds was created by blending three key factors – the average amount in super held by each individual in a fund, the net benefits outflow ratio (an indicator of how many older members are taking money out of those funds) and the total assets of the fund.
As the wider impact of the new tax continues to become more obvious, it is now clear that franked dividends will be hit – it will also capture assets which were loss making and those losses have not yet been fully recovered – even though the value of the asset is now rising again.
The Greens had begun their negotiations with Jim Chalmers and the government calling for the entry threshold to be reduced from $3m to $2m and for the tax to be inflation-indexed. The new 15 per cent tax is set to be imposed on earnings above $3m in super accounts.
The expectation is that unrealised gains will remain in place while indexing may still be introduced under negotiations with the Greens.
The tax collection on the new super tax begins on July 1, 2026, which means it will be in force from July 1 this year.
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