What Jim Chalmers’ super changes will mean for you

Australians with growing nest eggs can breathe a little easier after Jim Chalmers’ backflip on superannuation tax changes.

Younger Australians won’t be caught out by the $3 million cap when they reach retirement, now that indexation will apply.

Labor has also dumped its controversial plan to tax paper gains — a move that would have hit self-managed super funds with extra tax on assets they hadn’t sold.

Treasurer Jim Chalmers on Monday back flipped on the controversial policy, dumping the most unpopular aspects of Labor’s Better Targeted Superannuation Concessions Bill, first announced in 2023.

The 0.5 per cent or 80,000 Australians with more than $3 million in super are still being targeted, but with a policy that’s now due to come into effect a year later than earlier planned, on July 1, 2026.

Unrealised tax dumped

Labor has backtracked on its plan to tax the unrealised gains, or paper gains over a financial year, which would have created problems with self-managed super funds that owned assets like farms and commercial office blocks that are harder to sell.

That’s because the now-dumped policy proposed to tax unrealised gains before assets in a super fund were sold, which contravenes the usual approach of only levying the capital gains tax once assets had been offloaded.

Instead, those with more than $3 million in super will be taxed on earnings from share dividends and bank interest held within a superannuation fund.

A 15 per cent earnings tax already exists on Australian superannuation balances during the working or accumulation phase, which the super fund pays on investment income.

Under Labor’s revised super tax plan, a new 15 per cent tax on realised — as opposed to unrealised — gains would be levied on super balances above $3 million but at the level of the individual rather than the fund.

This would still raise the effective tax rate on earnings to 30 per cent for super balances above $3 million.

Indexation for inflation

The $3 million threshold will now also be indexed for inflation, with this policy capturing balances of up to $10 million.

SMSF Association chief executive Peter Burgess, who had campaigned against Labor’s earlier proposal, said dumping the plan to tax unrealised gains was a good decision.

“They have addressed today the two most contentious components of the tax - the lack of indexation and the taxing of paper profits,” he told The Nightly.

Professor Robert Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, said indexing the $3 million threshold would be good news for young people.

“I think for the average, young person, they need to be less worried over that,” he told The Nightly.

AMP deputy chief economist Diana Mousina had calculated that under the dumped proposal, the average-income worker now in their twenties would hit a $3 million retirement savings threshold by the time they retired in four decades’ time.

The Financial Services Council, which represents retail super funds, had calculated 500,000 young people would have been affected, including 204,000 now under 30.

But Ms Mousina said the changes meant average-income workers now in their twenties would be spared hefty taxes in decades to come.

“It is good news, ultimately, that the government has looked to apply these changes,” she told The Nightly.

“The proposal now is a $10 million threshold: the average worker today will not reach that threshold.

“It will be the ultra-rich that will be the ones that will be hit by that so the average worker will not be impacted by the additional taxation.”

The retirement phase of super, which is tax free, is already indexed for inflation with an existing $2 million transfer balance cap.

The same principle would apply when it came to taxing super balances above $3 million.

The Greens had wanted the threshold reduced to $2 million but indexed for inflation while the Coalition was opposed to the concept of taxing unrealised gains, which in Europe has only ever applied to the net wealth of the very wealthy.

Professor Breunig said indexing the super threshold would not entirely stop bracket creep, where rising super balances put retirement savers into higher tax brackets.

“They’ll still be some bracket creep because superannuation balances grow faster than inflation,” he said. “So it’s not like nobody will be drawn into that.”

He said Labor’s changes were about trying to get its super tax plan through the Senate, where Labor doesn’t have a majority.

“This was pretty key for getting political support. It’s important that they get this over the line because this is just step one in hopefully what will be a series of tax reform, so we need success at the first one in order to keep going.”