How will the proposed 30% tax on super earnings above $3m work?
From 1 July 2025, a proposed new tax will apply to future earnings on super balances above $3m.
What can you expect?
The proposed tax on superannuation earnings is not yet law. What we know so far is that the Government intends to impose a 30% tax on future superannuation fund earnings where a member’s total superannuation balance (TSB) is above $3m. That is, if your superannuation and pension balances are above $3m from 1 July 2025:
An additional 15% tax will apply on earnings above $3m (not indexed); and
The 15% tax applies to ‘unrealised gains’. This will mean that a tax liability will arise if the value of fund assets increases even if they are retained.
Currently, all fund income is taxed at either 15%, or 10% for capital assets that have been held by the fund for more than 12 months. Unrealised gains, that is gains that are made because of changes in value, are not currently taxed – tax only applies when the gain is realised on sale or disposal of the asset.
If enacted, the legislation would mean that those impacted, could be paying tax on gains in value but without the cash from a sale to support the tax payment.
How it will work
An additional tax of 15% on earnings will apply to individuals with a total superannuation balance (TSB) over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance for the new tax uses the current definition and includes amounts in retirement phase pensions.
The proposed calculation aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.
How the tax will be paid
Individuals will have the choice of paying the tax personally or from their superannuation fund. Those with multiple accounts can nominate which fund will pay the tax.
TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.
Is there anything to do now?
The additional tax is not yet law so there is no need to act right now – if enacted, the new tax will impact on earnings from 1 July 2025.
If your superannuation balance is close to or above the $3m cap, it is important to seek advice on the best possible options for you. Despite the additional tax, superannuation might still be the best vehicle.
If you hold significant property or other illiquid assets in your superannuation fund, for example commercial property, it is the increase in value that is pivotal. The potential tax on these assets will be a key factor in determining whether they remain a viable asset of your superannuation fund (but not the only reason).
Note: The information contained in this update has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs.
You should seek advice before making any decision regarding any information, strategies or products mentioned to consider whether that is appropriate to your own objectives, financial situation and needs.
Current as of 17 May 2023.