The Australian share market retreated in value in February, with the All-Ordinaries index falling 3.0% for the month, closing at 7,458.0 points. The Australian Dollar was also weaker falling 4.5% for the month, with 1 Australian Dollar buying 67.43 United States cents.
The Reserve Bank of Australia (RBA) Board delivered another 0.25% per annum rate increase in February, bringing the official Cash Rate to 3.35% per annum. The RBA Board meet again next week.
Global share market returns were mixed in February, with the United States Dow Jones Index falling 4.2%, the London FTSE gaining 1.3%, the Japan Nikkei 225 gaining 0.4%, and the Hong Kong Hang Seng Index continuing its recent trend of volatility, falling 9.4%.
Late in the month, the Federal Treasurer Jim Chalmers confirmed that individuals with superannuation balances surpassing $3 million will see their tax rate double to 30% from the 2025/26 financial year.
Currently, earnings from superannuation in the accumulation phase are taxed at a concessional rate of up to 15%, with the Treasurer confirming in a statement that this will continue for all superannuation accounts with balances below $3 million.
The Treasurer has indicated that this change will impact only 0.5% of people with superannuation accounts as shown in the table below:
The government is citing that the changes will have a positive revenue impact of approximately $2 billion in its first year of operation, with the Federal Government set to introduce enabling legislation to implement this adjustment "as soon as practicable".
On balance, doubling the tax rate for large superannuation balances to 30% is arguably a better outcome than the mooted alternative of applying the top marginal tax rate on large balances of 45%. I also note that the additional tax will only apply on the component of an individual's superannuation balance greater than $3 million.
Nevertheless, the Federal Government did make an election promise not to make changes to superannuation and here we are….
Let’s hope this new $3 million "large balance" threshold will not become like the introduction of Division 293 tax on superannuation contributions. This was introduced in 2012 to target "high income earners" at an income threshold of $300,000. This threshold was subsequently reduced in 2017 to $250,000, and has never been indexed to account for wage growth.
Division 293 tax now impacts many more individuals than as promoted by the Federal Government back in 2012. When adjusting for wage growth, the equivalent Division 293 tax threshold in 2012 would have been approximately $150,000. My fear is that the same thing will occur with this new $3 million "large balance" threshold as the Treasurer has indicated that the limit will not be indexed over time, or worse still, the Federal Government may reduce the limit from $3 million in subsequent federal budgets.
For more information, please contact Ryan Love on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.