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Navigating the proposed superannuation tax changes in Australia

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By Capital Partners Wealth Planning

In late February, the government announced that from the first of July 2025, a 30% tax rate will be applied to future earnings for superannuation balances above $3 million. While not yet law, the headlines have prompted many to question ‘does this apply to me?’

We know that when conversations like this start gaining momentum, we should reach out to our community and share our insights. Capital Partners Founder, David Andrew, along with Head of Advice, Kathryn Creasy come together to elaborate on what this proposal really means.

What does it all mean?

The current government is proposing that after the next election, there will be a 30% tax on the earnings of superannuation funds that have a balance of more than three million dollars. According to Kathryn, the biggest point to clarify is that this is per member.

“If you have a fund that is three million dollars in total, but each person only has a 1.5-million-dollar balance, the change will not apply. On the flip side, even if you have a self-managed super fund (SMSF) and an industry super fund, at the end of the year, if your total balance exceeds $3 million, then the higher tax will apply”.

New tax, new calculation method

The proposed changes open a new chapter in the way superannuation funds are taxed. Until now, a fund could only be taxed on income earned, and capital gains realised.

Under the proposals the Government will tax fund members on the fund balance over $3 million based on unrealised growth in the fund. As the account balance increases year on year, the increase will be taxed. We see this causing considerable concern for fund members holding illiquid assets like farming or commercial property.

A short history of superannuation

When it comes to understanding the context of these changes, having an adviser with years of experience on your side can provide peace of mind. David believes that what we see today is an unwinding of tax breaks started in 2006.

“Right up until 2006, superannuation accounts were taxable in some form, and the tax-free or heavily concessional nature of superannuation is a relatively recent thing. In 2006, Peter Costello, was the Treasurer and the primary motivation was to simplify the superannuation system that had become very complex”.

More recently the Morrison Government introduced caps on tax-free pensions starting at $1.6 million, and soon the limit will be $1.9 million. That remains a generous amount tax-free superannuation. Now the question is being asked: “How much is enough concessional taxed super, given the cost to the budget?”

The Government justifies the change on the basis that there are 80,000 members with over $3 million in account balances. With the largest superannuation balance in Australia alleged to be $460 million, few would argue that concessional tax treatment should apply.

The most controversial change is the Government’s decision not to index the $3 million cap. Over time, this will mean many more people are captured in the higher tax net. It is now clear that the Government intends to remain firm on this change, something a future Government may review.

More changes ahead

In late February, Treasurer Chalmers announced that “Australia needs to have a conversation about superannuation.” We believe the entire tax system needs review. The budget position demands change and there is already considerable inequity baked into the system.

A young person today earning $100,000 is paying about $23,000 in income tax, while their parents, who may have many millions invested, may pay little or no tax due to franking credits.

“It seems that the Government is tinkering at the edges with these changes, we advocate for a much broader review to provide a fairer system, with a greater incentive for wage and salary earners,” says David.

Superannuation uncertainty

Having worked in the superannuation sector since 1987, David is of the view that superannuation has constantly changed. “Irrespective of these changes, superannuation remains the most efficient vehicle to save for, and fund retirement. With the opportunity to have $1.9 million in a tax-free pension, and a further $1.1 million taxed at 15%, no other tax structure can come close,” he said.

While these benefits will almost certainly be eroded over time, the benefits of superannuation as a savings vehicle are impossible to argue against.

Kathryn adds, “The government will provide incentives for people to save for retirement, but the tax settings will continue to evolve and change. We need to move with the times.”

Key takeaways

  • Superannuation remains a highly efficient savings structure.
  • Superannuation will continue to evolve to serve changing demographics in Australia.
  • For those with balances over $3 million, we see many planning opportunities to restructure benefits to limit the impact of these changes.

As always, your team is on standby should you have any questions or concerns about the proposed legislative changes. Please don’t hesitate to reach out to your adviser.

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The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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