For eighteen months, the fight over Labor’s superannuation tax changes was fought in the open, over one number: $3 million. That was the threshold above which Treasurer Jim Chalmers wanted to tax large balances, including gains nobody had actually banked yet.
It was loud, it was political, and eventually Labor backed down: the plan to tax unrealised gains was scrapped, the start date pushed back, and low-income earners handed a bigger offset in the process.
Most retirees reasonably assumed that was the end of the super tax story. It isn’t.
A second, far less publicised change has surfaced from the same May budget package, and unlike the $3 million tax, it doesn’t just hit the wealthy. It reaches into ordinary account balances, and for a meaningful slice of self-managed super fund holders, it can quietly shave tens of thousands of dollars off what’s left at retirement.
The technical bit, in plain English
Buried in the government’s capital gains tax rules is a change to how “loss ordering” works inside managed investment trusts (MITs), the pooled investment structures that many super funds use to hold shares, property or other assets rather than owning them directly.
Under the new rule, a trust can no longer apply its capital losses against gains that don’t qualify for the standard CGT discount before mopping up the discount-eligible gains. In effect, a super fund that holds an asset through an MIT can end up paying more tax on exactly the same investment than a fund (or an SMSF) that holds the identical asset directly.
The Financial Services Council put a number on it: the change can push the effective tax rate on affected gains from the usual 10 per cent up to 15 per cent inside super, worth up to $500 in extra tax for every $10,000 of gains caught by the rule.
What it actually costs a retiree
Modelling commissioned by the Coalition and checked by the SMSF Association gives a sense of scale. A 30-year-old on a typical wage with 8.5 per cent of their super in MITs would retire at 65 with a balance around $11,000 lower than otherwise. That’s the “average” case.
The scenario that should worry SMSF trustees specifically is worse: someone with half their SMSF assets held through an MIT could be $146,210 worse off by age 65 in nominal terms, more than $61,000 in today’s dollars.
Given SMSFs collectively hold an estimated $264 billion across listed, unlisted and other managed investments, according to ATO figures cited by the SMSF Association, the number of funds potentially caught isn’t trivial.
Industry reaction has been unusually unified. The SMSF Association, the Financial Services Council, Colonial First State, Hostplus, the Australian Custodial Services Association and the Association of Superannuation Funds of Australia (ASFA), bodies that don’t always agree, have all separately raised concerns or lobbied Treasury to fix it before the legislation is introduced.
ASFA chief executive Mary Delahunty has confirmed the organisation is making a written submission asking for the current loss-ordering treatment to be preserved.
Treasury has said only that it will “consider all submissions and feedback” before finalising the bill, and Chalmers has maintained the budget “didn’t change the tax rate applied to super funds,” a defence that turns on the fact that the tax rate on super itself hasn’t moved, even though the effective rate on some gains inside it has.
Why this matters more once you’re near or in aged care
Australia’s new financial picture for retirees, on the surface, looks like a genuine success story. New ASFA research shows average balances have climbed again, to $202,644 for men and $164,206 for women overall, and the share of over-65s relying on a full or part Age Pension has fallen from 70 per cent in 2012 to 56 per cent today.
ASFA’s Delahunty describes the system as reaching “maturity,” with rising balances doing exactly what they were designed to do: reduce reliance on Centrelink and let more people fund a comfortable retirement themselves.
But the aged care means test cuts the other way. Superannuation held in an account-based pension, along with most other financial assets, counts toward the assets test that determines a resident’s means-tested care fee, currently capped at $35,910 a year, on top of the basic daily fee and any accommodation costs.
The test is tiered, with a steeper 17.5 per cent taper applying to assets in the lower band before falling to 1 per cent and then 2 per cent on higher amounts. It isn’t set-and-forget, either: a fee can be recalculated if a person’s assets or income change after they’ve already entered care.
Put those two facts together, and the loss-ordering change looks less like a rounding error and more like a fee-relevant erosion. A retiree whose SMSF balance is quietly reduced by $60,000-plus in real terms over their working life isn’t just retiring with less: for someone sitting near a means-test threshold, that gap can be the difference between a lower assessed fee and a higher one, or between qualifying for extra support and not.
The same policy settings that are being celebrated for lifting people off the pension are, in a narrower but real set of cases, working against the same people once they need care.
The trust question underneath all of it
There’s a second thread worth watching alongside this. In Senate Estimates, NSW Labor Senator Deborah O’Neill pressed the prudential regulator APRA on its concerns about four platform superannuation trustees (HTFS Nominees, Diversa Trustees, Equity Trustees and Netwealth), including how rigorously they’d assessed new investment options offered to members.
APRA’s answer was that secrecy provisions in its own Act prevent it disclosing the detail of what it found, beyond confirming a thematic review took place and that it’s the trustee’s job, not APRA’s, to judge whether an investment option suits members.
For anyone with super sitting on one of these platforms, a common setup for self-directed retirees, that’s a reminder that “my provider passed a regulatory review” and “I know what the review found” are not the same thing.
None of this is legislated yet. The loss-ordering rule can still be amended before the bill goes to Parliament, and industry pressure has forced backdowns on this package before.
But for readers weighing when to draw down super, whether to hold assets through a trust structure, or how close they are to an aged care means-test threshold, it’s worth tracking now rather than after the fact: the difference, on the industry’s own modelling, is measured in tens of thousands of dollars.
