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The government is planning to implement new tax rules for Australians who have more than $3million saved in superannuation from 2025 under proposed changes.

The aim is to generate more revenue and create a fairer system, with draft legislation for the tax concession changes unveiled on Tuesday by treasurer Jim Chalmers.

Dr Chalmers said everyone would still receive super tax breaks under the changes but concessions would be less generous for balances of more than $3million.

‘Australians are making hard choices around the kitchen table, and it’s important that the government does the same thing around the cabinet table,’ he said.

But the opposition has accused the federal government of breaking an election promise by tinkering with super tax settings and is expected to fight the changes.

Here’s everything you need to know about the changes. 

What are the tax changes?

The legislation will double the tax from 15 per cent to 30 per cent on earnings from superannuation balances over $3million. 

The tax concession changes are due to come into force in 2025, after the next election. 

The wealthiest 0.5 per cent of the population would see their concessional tax rate on super contributions double to 30 per cent from 2025 (stock image)

How the tax will be applied? 

Your earnings in your superannuation account will be calculated by looking at how much your account grows from the beginning to the end of the year. This growth is taxed at 15 per cent.

It’s important to know that during the accumulation stage, the earnings are already taxed at 15 per cent, so this is an extra tax on top of that.

If you have more than $3million in your account, this extra tax applies. This $3million limit won’t increase with inflation, so over time, more people might be affected.

How to pay the tax?

Aussies have two options for paying the tax. They can either use the money from their superannuation accounts to cover the tax, or they can pay it directly from their own funds. 

Who will it affect?

The government claims the proposal would affect 80,000 Australians, approximately 0.5 per cent of people with super funds currently have balances over $3 million.

But the Financial Services Council, which represents retail super funds, argued it would hurt 500,000 people in coming decades, including 204,000 now under 30, unless it was indexed for inflation

The changes will apply to self-managed super funds, APRA-regulated funds, and exempt public sector schemes. 

Modelling shows it will raise $2billion in its first year of revenue.

The higher tax rate will also apply to unrealised gains on the value of super funds during the financial year, which is a first for the Australian tax system.

The Treasury has stated that the introduction of the new tax regime is necessary to address individuals who are utilising superannuation as a means to minimise their taxes and for estate planning purposes. 

But Self Manged Super Association CEO Peter Burgess argued taxing unrealised gains was ‘not the answer’. 

‘While the association doesn’t support super members with excessively large balances receiving generous super tax concessions, taxing unrealised gains is not the answer,’ Mr Burgess said. 

‘It will give rise to many unintended consequences, defies longstanding principles of our tax system, and will result in outcomes inconsistent with the stated objective of this new tax.’ 

‘The stated objective of clawing back tax concessions afforded to high-wealth superannuants is to reduce the revenue lost due to existing concessions.

‘It shouldn’t be to impose a new tax which, for some, will not only claw back those concessions, but result in more tax being paid then would have been the case if there were no concessions.’

Super industry bodies and investors have raised issues with the idea of taxing unrealised capital gains (stock image)

Treasurer Jim Chalmers (pictured) said everyone would still receive super tax breaks under the changes but concessions would be less generous for balances of more than $3million

Can the government get the policy through? 

Without the coalition’s support, the government will need the Greens and key crossbenchers on board.

The Greens want super payments on paid parental leave in exchange for their support.

Greens spokesperson for women, Larissa Waters, said the proposed changes to concessions were more than enough to cover the cost of super for women on paid parental leave.

‘Labor is making women wait for minor measures like paying super on paid parental leave that would immediately improve economic equality, but can somehow find $313 billion for the stage three tax cuts,’ Senator Waters said.

Dr Chalmers said the government still planned to provide the superannuation guarantee on paid parental leave ‘when we can afford to do it’.

‘The Greens can call for all kinds of things, they don’t have to run the place and they don’t have to run the budget,’ he told reporters on Tuesday.

He said the government had already extended paid parental leave at some cost to the budget.

Source: | This article originally belongs to Dailymail.co.uk

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