Will you be affected by the new proposed $3 million-dollar super contribution cap in 2023?
The Australian Government has recently proposed a new law that could impact the superannuation savings of some individuals.
The proposed legislation will see balances in Superannuation above $3 million taxed an additional 15%, bringing the total tax rate to 30%.
So, what’s the reasoning behind these new changes? How will it affect you, and what does it mean for your future finances?
The rationale for the Superannuation Cap 2023 proposal
This move is part of the Government’s efforts to reduce tax concessions on higher-income earners and ensure a more equitable distribution of wealth.
The proposed super tax by the Australian Government for 2023 is a rudimentary approach towards levying additional taxes. It aims to impose a tax of 15% on the difference between the total superannuation balance in two consecutive years after accounting for contributions made and withdrawals taken.
This extends from the transfer balance cap introduced in 2017, which limited how much people could have in a tax-free pension, with everything above that needing to remain in an accumulation account taxed at 15%.
As a result, those with substantial super balances need to be aware of these potential changes and plan accordingly before they come into effect in 2023 when the new super contribution cap takes effect.
Who will be affected by the Superannuation changes 2023?
The Superannuation changes 2023 will significantly impact high-net-worth individuals in Australia. The changes specifically target those with balances exceeding $3 million, which means that only a small portion of the population will be affected.
One of the biggest impacts will be felt by those with large assets in a self-managed super fund (SMSF).
This change means that investments made through SMSFs that have not yet been realised may face additional tax liabilities under the new rules.
It also means that investment growth, even if still unrealised, may now fall within the scope of taxation laws.
This could cause significant challenges for SMSF holders who have invested heavily in one particular asset or market and were hoping to realise significant gains upon sale.
Super cap 2023: What does it mean for the future?
The recent announcement of the Superannuation changes for 2023 has been met with mixed reactions, particularly regarding the proposed cap of $3 million. While it may seem like a significant amount today, experts are warning that its value will diminish over time without any indexation to that cap.
This means that what may be considered a substantial sum now could become much less valuable in the future, especially considering inflation.
Furthermore, the proposal doesn’t include any provisions for adjusting this cap in line with future legislative changes. If CPI averages 4% in the future, the transfer balance cap would index to exceed $3m in 12 years.
Financial Planning for Superannuation 2023
Given this extra tax and the calculation method, people who have only marginally above $3m in financial assets may want to consider whether the amount above $3M may be better outside superannuation.
Investing outside of Superannuation can provide greater flexibility and control over investments, and based on this proposed law, lower taxes on returns.
On top of that, couples should work towards having an equal balance if one person is likely to reach the $3m cap.
It is important to seek advice from a qualified financial advisor who can provide tailored advice based on individual circumstances and goals.
What you need to know about the 3 million Dollar Super Contribution Cap 2023
The proposed 3 million tax cap for 2023 is a significant change that could have an impact on some individuals.
While the reasoning behind these changes may be to generate revenue for the Government, it’s essential to consider how they will affect you.
If you fall into the high-earner bracket, it’s crucial to plan your finances accordingly and consult a financial advisor if necessary.
Ultimately, this tax cap proposal signifies the importance of staying informed about changes in tax laws and regulations that may affect your future financial stability. Take control of your finances today and prepare for what lies ahead.DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
Precision Wealth Management is a local, privately-owned financial planning firm based on Brisbane’s northside.
Our certified advisors work with each individual client to determine the best wealth creation strategy based on their unique situation.
We strive to stay at the forefront of the industry, and our investment approach is based on decades of research.
Financial Planner Brisbane
Our services include Superannuation Advice And Planning, personal Insurance Advice, Budgeting And Cashflow Management, Investment Strategy And Advice, Aged Care Financial Advice, Retirement Planning Advice, and Debt Reduction Financial Planning.
At Precision Wealth Management, we offer flat fee pricing which is determined on the complexity of the work – not the value of your investments.