4 June 2025
Labor’s proposed changes to taxation of Self-Managed Super Funds
Written by Tim Jones
You may have heard of a proposed change to taxation concessions for Self-Managed Super Funds (SMSFs) under the newly appointed Labor Government. This requires closer inspection as it will impact a large portion of the population if it does pass into law, especially those Australians nearing retirement
What is a SMSF?
A SMSF is, as the name rightly spells out, a super fund that is managed by you and other members (as may be nominated) to provide for your retirement. In your capacity as trustee of the fund, you bear the responsibility of managing assets, growing the fund, and being compliant with the applicable taxation and legislative requirements that govern SMSFs (namely, those provided for in the Superannuation Industry (Supervision) Act 1993 (Cth)) (“SIS Act”).
Whilst the governance requirements are stringent, a SMSF does give members greater flexibility and control in dealing with how their retirement benefits are invested and managed. This is in direct contrast to an industry or private super fund that deals with your money of which you rarely see in-depth reporting, unless asked, on what they are doing with your super balance.
The governance requirements for SMSF are varied. As an example, there are strict rules regarding how trustees are appointed. You may appoint individual trustee or a corporate trustee to manage the SMSF. The differences being:
| Individual | Corporate |
|---|---|
| Must be two trustees as individuals | One trustee |
| Individuals are liable for the trusts debts | The corporation is liable for the trusts debts |
| Easier to manage | More complex structure and compliance |
| Assets differentiation may become difficult | Clear delineation of assets |
| Cheap | More costly due to fees associated with company structure |
| Rigid | More flexible |
There are also rules regarding:
- The sole purpose test – this rule has been established to make sure that the sole purpose of an SMSF is set up to provide for the retirement of members of the super fund.
- Limited recourse borrowing arrangements – this is set up to allow SMSFs to borrow money which is generally not allowed under the SIS Act. An LRBA is where the SMSF trustee obtains a loan and acquires an asset through a holding trust which is separated from the SMSF. The SMSF gains the beneficial interest in the acquired asset by paying off the loan.
- Maximum permissible contributions – there are contribution caps for members of an SMSF and all members must comply with these caps or face penalties. The cap amounts for members are contributions of $25,000 annually and/or $500,000 across a member’s lifetime.
What is the proposal?
3 years ago, Labor made plans to introduce an increase on tax from 15% to 30% for earnings of SMSFs that held super balances over $3 million. That plan was scrapped due to support between all parties failing. Enter 2025, with a well held majority, Labor seems hellbent on reviving that policy and pushing it through the lower and upper houses of Government to be enshrined into law. The contentious part of the proposal is that Labor have announced that:
1. they plan to tax any gains above the threshold no matter if they have been realised yet or not; and
2. they have no plan to index the rate of taxation.
This new law, should it pass, would be brought into effect by 1 July 2026 and may have retrospective application.
How will it impact people?
Under the current proposal this would only impact an alleged 80,000 people, however noting that there is no provision for indexation, that figure would likely drastically increase over time. As inflation increases, and the general value of a dollar loses value, the $3 million threshold will start being reached by far more people than intended. The ramifications of failing to adjust the indexed rate may end up affecting people who the tax was never meant to impact and see people who have rightfully set up their futures for their old age being unfairly punished.
What can you do?
It is important to note that this proposed plan has yet to be approved and legislated for so it may not come into effect at all. However, noting the potential impact, especially in the future, it is best to read about how the changes may impact your investment strategies and open dialogue with SMSF specialists and accountants to receive advice as to how to best manage your super balances.
JHK Legal is experienced in establishing SMSFs and providing advice in respect of structuring real property investment purchases through your SMSF. If you are considering establishing a SMSF or looking to purchase real property within your existing SMSF, contact our office to speak with an experience solicitor about your self-managed super fund.
JHK Legal can also refer you to a SMSF specialist should you require investment strategy advice.