An excuse to start a conversation with your most valuable clients.

CRE Success Principle: Your clients rely on you to be across the listing process, but you can exceed their expectations by helping them to understand the big-picture factors affecting their investments.

If you’ve ever struggled to stay in regular contact with your top clients, you’re not alone.

It’s something I didn’t always do well when I was still on the tools in commercial real estate, mostly because I didn’t have enough clear triggers to initiate contact.

That’s why, in episode 225 of Commercial Real Estate Leadership, I unpack a proposed change to Australia’s superannuation tax laws and outline why it’s the perfect excuse to reconnect with high-value clients who could be affected.

The federal government plans to reduce the concessional rate of tax on super balances above $3 million, including the consideration of unrealised gains.

While this change will only impact 0.5% of all people with superannuation accounts in 2025, there are implications for your clients that hold commercial property in their SMSFs.

I walk through what the change involves, why it matters, and how to approach the topic without straying into tax advice.

I also explore how this shift may increase demand for property valuations – and how you can position yourself as a trusted voice in a time of confusion.

If you’re looking for a smart, relevant way to add value, this episode is for you.

Episode transcript:

Something that I wasn't the best at when I was still on the tools in commercial real estate was keeping in regular contact with my most valuable clients.

And I think part of the reason for that is because I didn't always have enough triggers, enough reasons to initiate contact.

Well, today I want to unpack a proposed change in taxation laws that will no doubt affect some of your clients.

We're going to explain what the changes are, why they matter, and how this opens up the opportunity to initiate a conversation with your best existing clients, and also with your prospects, that presents them with relevant, timely value.

This is Commercial Real Estate Leadership. It's episode 225. I'm Darren Krakowiak. I help commercial real estate principals scale faster by building high-performing teams, attracting premium clients and installing systems that run without them.

If you're listening to us on Apple Podcasts or Spotify: Hello, thank you for being there. I really do appreciate it. And one little favour you can do is just make sure you are following the show on those platforms for two reasons.

One, it makes sure that you are aware whenever we release another episode. And secondly, it helps more people like you discover this content.

Now, today's show is a little bit different because I'm going to be talking about a proposed change to government policy, which is not something that I typically talk about.

And I do want to give the, you know, the prerequisite, kind of, disclaimer that this is not taxation or investment advice, and you should speak to an accountant or a solicitor. And you should be giving your clients that same disclaimer as well when you're talking about these changes to Australia's superannuation laws.

Now, if you are not in Australia, superannuation is kind of like what the US calls a 401k. It's people's retirement funds.

And there are some changes that have been around for a while that is on the government's legislative agenda. They've previously proposed this, and it didn't get through the upper house. They shelved the plans. They didn't completely abandon them. It was referenced during the election campaign, but it wasn't particularly high profile.

But there's a little bit of noise going around about it now because there are some controversial aspects to these changes. So, let's just talk about what the change is.

What the government is proposing to do is to reduce the tax concessions that are available to individuals whose total superannuation balances exceed $3 million.

So, if you're an individual with a balance above that threshold, you're going to be subject to an additional tax of 15% on the earnings on any balance that exceeds the $3 million threshold.

So, if you're not aware, currently there's a concessional tax rate for earnings within a super fund of 15%, rather than whatever the applicable marginal tax rate for an individual might be.

And the government's saying that rather than giving a concessional tax rate for an entire super balance uncapped, the 15% is going to be capped for the first $3 million and after that, you're going to be paying a 30% tax rate, which is still a concessional rate.

Now, there are two main controversies about this proposed change. The first controversy is that it taxes unrealised gains. The second controversy, which is less of a controversy in my opinion, is that the threshold is not indexed.

So, let's just talk about what this means.

The taxing of unrealised gains is a little bit unusual because this means that people will be taxed for on-paper profits.

So let me give you an example. Let's say you've got a client who has a $10 million property inside their super fund, and that's the entirety of their super. And in one year, that property goes up in value by 5%, so it's now valued at $10.5 million, which will show them having made $500,000 on paper.

Now, if they don't sell it, it's an unrealised gain. Now, under the government's proposed changes, they'll need to pay tax on that increase in value, but only on the proportion of the earnings for the balance above $3 million.

So, this little technicality caught me up when I was trying to understand these rules. They are subject to taxation on the 7.5 million divided by 10.5, which is 71%. So, 71% times the total increase in the value of the property, which was $500,000, and then times that by 30%, which means that the total tax bill is $106,500.

So, I thought originally it was the total $150,000. It was 30% of the total increase, but it's 30% of the increase proportional to what that increase represents above $3 million and the total amount in the super fund.

A little bit technical, and that's another criticism of this, it's a little bit technical and confusing, but you know, previously that wouldn't be a taxable event because if you don't sell the property, you haven't realised any gain.

Now you do pay tax on increased valuations in your property portfolio because of land tax, but I think this is really quite a different principle. So that's the first controversy.

The second controversy is the fact that this is not indexed, and people are saying that even though it currently only affects 80,000 people, approximately 0.5% of people who have a superannuation fund have a balance above $3 million.

People say, well, over time that will impact more, and of course it will if the threshold is not changed. And I did see an interview with the treasurer, Jim Chalmers, where he said it would be highly unusual if the threshold wasn't changed in the future, and that is consistent with the principle of income tax thresholds, which are not subject to indexation.

So, I'm probably less concerned about the indexation matter because I think that it will get changed in the future, because if $3 million doesn't represent an excessive amount in the future from the government's perspective, then they don't want people getting caught up in this.

This is for people who are using superannuation as a tax minimisation vehicle. That is the purpose, right? Not saying that's a good thing or a bad thing, I'm just saying that is the purpose of the legislation.

That's probably why some people aren't familiar with these changes, because it only affects a small proportion, and I guess the mainstream press is kind of treating it like that, because if it's only affecting a small proportion of people.

So, we're going to get a little bit in the weeds here about politics. The government previously tried to get this through the Senate. It didn't go through. They've kept the policy. They argued for it at the election. They've won the election.

Now they need to negotiate with either the Coalition – the Liberal Party and the National Party – or with the Greens in the upper house to steer this legislation through.

Now I saw an interview with someone from the front bench of the Liberal Party basically saying, “We don't have an issue with people paying a little bit more tax for balances above $3 million.”

What they do have an issue with is the indexation and the taxing of unrealised gains.

On the other hand, the Greens have also stated what their position is, and they're okay with people being taxed on unrealised gains, but they're proposing that the increased tax rate apply for balances over $2 million rather than $3 million. But they're also saying that the threshold should be indexed.

Now, people who are against this are against the changes because people who have made decisions to put certain assets into superannuation have done so under the rules, right?

They're just following the rules, and now the government's shifting the goalposts. Proponents of the changes say that people with extraordinarily large super balances are using the vehicle for tax minimisation rather than to fund their retirement.

Now my view is, is that this is going to happen, and I think the government will likely get its way.

So, the question then becomes, what can people with large property holdings in their super funds do to minimise their tax or to avoid paying this tax?

And that's probably the type of question that you're going to get from your clients that have more than $3 million in their super fund with property in there.

Well, they could look to – and again, this is not advice, go out there and get your own advice and make sure your clients do as well – but if you're caught up in this new tax, you could look to move assets out of the superfund and into other vehicles.

That would mean that you wouldn't be able to access that concessional rate, but you wouldn't get caught up in paying for unrealised gains.

Now, there might be a stamp duty expense that would be incurred if you transfer a property from one entity to another, but that might be preferable to an ongoing expense of paying tax on an unrealised gain. Again, you'd need to speak to an accountant to run the numbers. There are other vehicles out there, like trusts, that do offer some tax benefits.

So that's the crux of what's going on here. So, if you weren't aware of it, now you are, and you can hopefully speak about it with some knowledge if a client asks you about it.

In terms of what to do, I'd be, first of all, be proactive with your clients that do have property inside super funds and just let them know about these changes and that you are across it, because I've seen some misinformation and also people misunderstanding what these changes are.

So you can be, I guess, someone who can provide the facts. You might even want to share a fact sheet. One of my clients shared a fact sheet from Treasury, which really explains the changes, including that proportional amount, which is subject to taxation, which I didn't understand until I read the fact sheet.

And just offer to discuss with your clients their options. And remind them, though, that nothing has been finalised. So, it's probably not a good idea to start changing your personal affairs before we actually know what the legislation is.

Now, one other impact of this legislation to be across from a property services perspective is that there's probably going to be more of a need for property valuations in the future.

Because anyone that has a property that's valued at more than $3 million in their super fund is now going to need to have that property valued at the start and the end of the year to determine what their unrealised gain is.

The other thing to be aware of, of course, is that as time goes by, more of your clients will get caught up in this, because at the moment, they're not indexing the thresholds, even though I mentioned that sooner or later they'll shift the threshold.

So, I guess make sure that your clients that aren't caught up in it also are starting to think about if and when they are caught up in it, what are they going to do about that?

And I guess my other bit of advice is to make sure that you are a source of reliable and factual information when you are providing an update to your clients about this potential change.

So that is our episode for today, a bit of a different one. I don't usually talk about government policy and taxation, but I did think it was important to talk about because a number of my clients’ clients are caught up in this.

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That is our episode for today. Thank you so much for listening, and I will speak to you soon.