Key takeaways from the 2023 Australian Federal Budget | Superannuation:
30% tax on the proportion of earnings attributable to superannuation balances greater than $3 million from 1 July 2025.
Super Guarantee to increase as previously announced from 10.5% to 11% from 1 July 2023.
1 July 2026
From 1 July 2026, employers will be required to pay their employees’ super at the same time they pay employees’ wages.
Reduction of superannuation concessions
From 1 July 2025, Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million.
Broadly, where an individual’s total superannuation balance exceeds $3 million at the end of a financial year, an additional tax rate of 15% on the amount of earnings relating to the proportion of their balance that exceeds $3 million. The formula calculates a deemed earnings amount which includes notional (unrealised) gains and losses, not just actual realised gains and losses.
Earnings on balances below $3 million will continue to be taxed at 15% or less under the existing rules.
These proposed changes were first announced by the Treasurer in a fact sheet released on 28 February 2023 and further discussed in a Consultation Paper released on 31 March 2023.
Government has reiterated that defined benefit schemes will be appropriately valued and earnings taxed to ensure commensurate treatment.
Increasing the payment frequency of employer Superannuation Guarantee contributions
From 1 July 2026, employers will be required to pay an employee’s Superannuation Guarantee entitlements on the same day that they pay the employee’s salary and wages.
Currently, Superannuation Guarantee liabilities are payable on a quarterly basis and are not aligned with the frequency of salary and wages payments.
The changes aim to improve employee’s visibility of superannuation payments and enable the ATO to monitor superannuation non-compliance in real time.
Superannuation Guarantee set to continue to increase to 12%
The Superannuation Guarantee rate is scheduled to increase as previously legislated from the current 10.5% to 11% from 1 July 2023.
The Superannuation Guarantee rate will increase to 11.5% from 1 July 2024 and to 12% from 1 July 2025.
Amending the non-arm’s length income (NALI) rules
The non-arm’s length income (NALI) rules for superannuation funds regarding general expenses will be amended to limit the NALI to twice the level of a general expense.
Non-arm’s length income of a superannuation fund is taxed at the highest marginal tax rate of 45%, rather than concessional rate of 15% or less.
From 1 July 2018, the NALI rules were extended to treat income as NALI where expenditure incurred in gaining or producing the income was a non-arm’s length dealing. These changes had the potential to ‘taint’ all the income of the superannuation fund where certain general expenses had sufficient nexus to that income (such as actuarial costs, accountancy fees, audit fees, investment adviser fees).
Treasury released a Consultation Paper in January 2023 proposing a factor-based approach to limit NALI, so that it did not taint all of the super fund’s income. Based on this Consultation Paper, NALI would be capped to an upper limit of double the value of the general expense, valued at an arm’s length price.
The announcement exempts large APRA regulated funds from the NALI provisions for both general and specific expenses, and exempts expenditure that occurred prior to 1 July 2018.
Minimum pension drawdowns return to original rates
From 1 July 2023, the minimum drawdowns for account-based pensions (and similar products) will revert back to their original rates.
Superannuation fund members who receive these types of pensions are required to draw down a minimum amount each year, calculated based on the member’s age and a percentage of their pension account balance. During the covid pandemic, Government temporarily reduced the minimum annual payment required for account-based pensions (and similar products) by 50% from 1 July 2019 to 30 June 2023.
|Age at 1 July||Temporary minimum amount from 1 July 2019 to 30 June 2023||Minimum amount from 1 July 2023 onwards|
|65 – 74||2.5%||5%|
|75 – 79||3%||6%|
|80 – 84||3.5%||7%|
|85 – 89||4.5%||9%|
|90 – 94||5.5%||11%|
|95 and over||7%||14%|