Written

For

The

Australian

-

Super

tax

won’t

hit

wealthy

investors

as

much

as

you

think

Would you believe that someone with $3.1m in super might only pay an extra 0.94% under the new Division 296 tax? Not the 15% everyone keeps shouting about.

There's been enormous outrage about the government's new super tax, and rightly so on some fronts — taxing unrealised gains is a dangerous precedent. But amid all the noise, a massive misconception has taken hold, and it's worth setting the record straight.

Most people believe Division 296 slaps a flat 15% on all earnings from super balances above $3m. It doesn't. The tax only applies to the *proportion* of earnings attributable to the amount over $3m.

Here's how it actually works. If your balance grows from $3m to $3.2m in a year, only 6.25% of that $200,000 gain sits above the threshold. Apply the 15% tax to that portion and you get $1,875 — not the $30,000 many assume. That's an effective rate of just 0.94%.

The sting only really shows up at much higher balances. A $6m balance faces an effective rate of 7.5%, $10m gets you 10.5%, and it climbs to 13.5% at $30m.

But here's my real concern. Once this law passes, advisers and accountants will rush to move wealthy clients into family trusts and investment bonds — structures that don't tax unrealised gains. And that shift will be almost impossible to reverse. If a future Coalition government repeals the tax, how do retirees get money back into super when contribution caps and age limits stand in the way?

The bigger casualty is confidence in super itself. Every new restriction makes Australians wonder what super will even look like when they retire. Will the preservation age rise to 65 or 70? Will a death tax appear? If people stop maximising salary sacrifice and start spending instead, we'll end up with more retirees leaning on the $50bn-plus age pension bill.

The Senate needs to think very carefully here.