The Federal Government is seeking to introduce changes to tax concessions in superannuation.

Below is a summary of key points for the new proposed tax on $3m super balances.

  • If passed, the changes will apply for the 2026 financial year, commencing 1 July 2025 – a reasonably long lead time from announcement to commencement
  • The changes have not been finalised – the details still need to be developed and legislation drafted.
  • The changes will apply to individuals (not superannuation funds) with a total super balance (from all their super funds) in excess of $3m on 30 June 2026.
  • A new tax of 15% will be levied on individuals on the earnings derived from their superannuation balance above $3m. This will be in addition to current superannuation income tax rate of 15%, applying to the whole of fund earnings.
  • The new tax however will be calculated via a special formula based on the growth in the member balance above $3m. Under the calculation formula, unrealised earnings will now be taxed, which is a radical change in a tax system that currently only applies tax on income received and realised gains from the sale of asset.
  • Under the proposal, unrealised losses can only be carried forward, but will not result in a tax refund.
  • The tax is levied on the individual and not the superannuation fund, but the individual can elect their superannuation fund pay the tax. The tax collection mechanism will be similar to the collection of Division 293 tax on concessional superannuation contributions for high income earners.

Possible issues and ramifications of the new tax

If passed, for those that who have been impacted by the changes, will need to assess the benefit of having more than $3m in superannuation and whether it would be more tax effective to invest the excess benefits in other tax entities (or other entities that don’t tax earnings on an accruals basis). It also raises questions. Would members who are not yet retired, or met a condition of release to access their superannuation benefits, be able to move their excess balance out of the superannuation environment?

The $3m threshold and tax applicable is tested only at year end which may be unfair when fund asset values fluctuate throughout the year.

For family superannuation planning, there will be a focus on building up the superannuation balance of family members who are below the $3m threshold, perhaps via recontribution strategies or contribution splitting.

Asset allocation in superannuation funds may also be affected. It may discourage investment in high growth (but low or no income yielding) investments. For instance, where will the cash come from to the pay the tax? Will the tax be paid though the member personally? Similarly, it may discourage superannuation fund investment in illiquid assets such as real property.

Elderly people may consider taking out all their superannuation benefits above $3m to avoid the extra tax, as well as the possibility of the superannuation death benefits tax of up to 17% being levied on these “excess” superannuation benefits upon death.

Our advisers will reach out to clients who are currently affected by the proposal or expected to be affected by the proposal, when it is implemented.