Navigating the Proposed Super Tax

What Medical Practice Owners Need to Know

As a medical practice owner, you are focused on growing your wealth while balancing the demands of your practice and your profession. That’s why recent discussions around proposed tax changes to superannuation balances over $3 million should be on your radar. Let’s explore what these changes could mean for you and what steps you can take to stay ahead.

What’s Behind the Proposed Division 296 Tax Legislation?

The proposed legislation introduces an additional 15% tax on earnings attributed to superannuation balances exceeding $3 million. This would effectively raise the tax rate on concessional earnings from the current 15% to as high as 30% for affected balances.

It is important to note that the $3 million threshold is intended to relate to each member's total superannuation balance, and not to the total investments or assets of a particular superannuation fund.

One of the most contentious aspects of the legislation is how earnings are calculated. They may include both realised and unrealised gains (e.g. the increased market value of assets you haven’t sold yet), which could result in unexpected tax implications.

What Does This Mean for Medical Practice Owners?

Even with the additional tax, superannuation can be a tax effective strategy for high income earners who may otherwise face personal tax rates of up to 47% (including the Medicare levy). However, medical professionals with significant super balances tied to appreciating assets, such as property, could face larger tax liabilities once this legislation is enacted.

For practice owners who are asset-rich but cash-poor within their superannuation fund, this may pose challenges when it comes to liquidity for paying tax bills. Understanding how these changes could impact your overall financial situation is crucial.

What Can You Do to Stay Ahead?

If your super balance exceeds $3 million or is nearing this threshold, now is the time to consult with your accountant and financial adviser on your strategy. Here are some key actions that a financial adviser will be able to advise on:

1. Spouse Super Contributions:

   • Exploring spouse contribution strategies to help distribute super balances more evenly between partners.

2. Alternative Investment Vehicles:

   • Good advisers will discuss the suitability of your overall investment vehicles.

3. Reviewing Asset Allocation:

   • Reviewing the mix of assets in your investment strategy in line with taxation changes.

   
   

Take Action Now

The Division 296 tax proposal is still under review, but its potential impact on high-balance superannuation accounts highlights the importance of proactive planning. For medical practice owners, staying informed and obtaining good advice can help protect your financial future while ensuring you’re in the best possible position to succeed. At GrowthMD we work with a number of savvy financial planners to obtain the best results for our clients.

If you have questions or need support, our team are here to help. Reach out to discuss the taxation implications of these changes.

^This information is general in nature and should not be considered as financial advice. We encourage all readers to obtain their own advice from licenced financial planners and qualified accountants.