What Jim Chalmers’ super tax backflip means for your savings

Monday’s dramatic watering down of his plan to hit high-balance super fund members with much higher taxes – along with some fresh super tweaks for lower-income workers – shows that common sense appears to have beaten party politics.

The changes affect almost all superannuation savers today, or in the future – not just those with $3m-plus in super – so it’s worth understanding what they mean for you.

Gone is the much-maligned 30 per cent tax on unrealised capital gains. This was arguably the most-hated part of the Treasurer’s previous plan, which would have involved taxing super fund members – such as farmers and business owners with large lumpy assets – on the increases in value of those assets, even if not sold. It would have forced people into selling assets just to cover their super tax bill, and some people had already started the sell-off process.

Also gone is the lack of indexation of these higher taxes, which under the previous plan would have pushed today’s young workers under the high-tax umbrella in future decades. While $3m sounds like a lot of money for many people now, the long-term power of compound interest would have eventually pushed more modest balances into $3m territory.

However, the relative handful of Australians with really high super balances – above $10m – will now be hit with a larger tax than previously flagged, 40 per cent up from 30 per cent.

The government also delayed the start date of the new super tax regime by one year to July 1, 2026 – good news for most savers, but frustrating for people who had already started strategies based on a higher tax starting this financial year.

They had every reason to expect it would come, given Chalmers and Anthony Albanese took the tax to the election and effectively got voters’ approval to introduce it via their crushing victory over the Coalition.

Messy backflip completed, Chalmers also delivered a fancy twist by increasing tax savings for lower-income workers by increasing the low income super tax offset from $500 to $810 from mid-2027, and raising its eligibility threshold from $37,000 to $45,000.

In an obvious example of “don’t look at our backflip – look over there!” – the government said the LISTO changes would help 1.3 million more people, a majority women, by benefiting all workers earning between $28,000 to $45,000.

Six key takeaways

If you don’t have more than $3m in super or you earn more than $45,000, there are still six clear takeaways for you from this huge super policy change.

1. Common sense still plays a key role in Australian politics, and governments are not so stupid that they will unnecessarily punish hardworking Aussies with draconian tax changes simply to fit their party’s ideology. When an overwhelming number of experts point out policy flaws, they respond.

2. Expect more ongoing tweaks to our superannuation system. These new announcements are changes on top of changes that had not even started, and there’s no reason to expect the tinkering will not continue. A recent analysis by The Australian’s Wealth team uncovered more than 70 significant super rule changes since compulsory employer contributions started in 1992.

3. Act on facts, rather than on forecasts and announcements. The farmers, business owners and others who started selling off assets to avoid the unrealised capital gains tax are losers from this latest rule change, because had they waited, they may not have had to do anything. I feel sorry for them, but because they are at the higher end of the wealth scale and we love chopping tall poppies, many Aussies won’t have sympathy.

4. Seek professional advice. The new Chalmers changes make superannuation even more complex, especially at the highest end, with another new tax rate of 40 per cent. While many of those who acted early would have done so based on professional advice, it’s still important to have second and third opinions from experts when making big decisions about retirement savings.

5. Investors should not fear even worse government changes in areas such as negative gearing, franking credits or capital gains tax on the family home. That’s because if the government could cave in and backflip on taxes for the wealthiest superannuation savers, it almost certainly won’t go after relative small-fry property investors and homeowners.

6. Superannuation is still the best structure to hold your retirement savings. Nowhere else can each member of a couple hold $2m in super during retirement and pay absolutely zero tax on earnings, capital gains and withdrawals.

The rule changes are frustrating, but the rules themselves are still generous.

Given the backlash that the unrealised gains tax and lack of indexation was causing, many industry watchers – including myself – felt that this backflip was inevitable, especially given the government’s recent lack of action on it since winning the election.

The initial superannuation tax cause big ripples through the superannuation and advice sectors, and Monday’s backflip effort is a clumsy splash landing. While ugly, it still should be applauded.

This article first appeared in The Australian as What Jim Chalmers’ super tax backflip means for your savings