We know that Superannuation is a crucial aspect of the Australian retirement landscape, providing individuals with a tax-effective means to save for their future. However, as the Australian Government looks to secure the nation’s long-term financial stability, it was announced in February this year that it would reduce the tax concessions available to individuals whose total superannuation balances (TSB) exceed $3 million. The proposal is intended to reduce the budgetary impact of superannuation tax concessions while promoting fairness and sustainability in the retirement savings system.
In this article, we will explore the details of this proposed tax and its potential impact on Australians’ retirement savings.
The proposed tax
The Government’s proposed tax on superannuation balances over $3 million aims to address concerns about tax fairness and wealth inequality. Under this proposal, individuals with a TSB exceeding $3 million will be subject to a 15% tax on the earnings generated from the amount over this threshold.
The Government recently released draft legislation, Better Targeted Superannuation Concessions, and offered us the first look at how the tax will be applied, following much conjecture from an array of industry experts.
What does it mean?
It is expected that less than 80,000 people will be affected, meaning that more than 99.5% of individuals with a superannuation account will be unaffected. The changes will commence from 1 July 2025.
Typical of superannuation, there is a layer of complexity in how it will practicably be applied.
Your TSB will be assessed as of 30 June each year to determine if the additional 15% tax will be applied. This means 30 June 2026 will be the first instance where this proposal would take effect.
Once it has been determined that an individual’s TSB exceeds the $3 million threshold for a year, the following steps will apply:
1. Determining the proportion of your balance exceeding $3 million.
This is simply the difference between your TSB for the current year (adjusted for withdrawals and contributions) and your TSB from the previous financial year.
For example, on 30 June 2025, Sarah’s TSB was $5.5 million. Fast forward 12 months and on 30 June 2026, Sarah’s TSB increased to $6 million. Sarah makes withdrawals totalling $150,000 during the year.
Opening TSB (30/6/2025): $5.5 million.
Closing TSB (30/6/2026): $6.0 million.
Increase in balance: $500,000, plus withdrawal ($150,000).
Sarah’s calculated earnings are $650,000.
Please note: if the calculated earnings in this first step are negative, this amount is carried forward and can be used to offset future earnings for this purpose. In this case, no further calculations would be required.
2. Identifying the applicable earnings related to the portion exceeding $3 million. This requires comparing your current total superannuation balance, to your prior year’s total superannuation balance.
Following Sarah’s example in step one, the proportion of her TSB of more than $3 million is 50% ([$6 million – $3 million] ÷ $6 million). Therefore, 50% of the calculated earnings from step 1 will attract the additional tax.
3. Applying the 15% additional tax on those earnings.
Lastly, the flat tax rate of 15% is applied to the proportion of earnings attributable to the individual’s balance over $3 million.
We have determined that Sarah’s calculated earnings are $650,000 (step one), with 50% (step two) of these earnings attributed to her TSB of more than $3 million.
Sarah’s tax liability is $48,750 (15% x $650,000 x 50%).
Sarah is able to use personal funds or release money from superannuation to fund the additional tax.
What’s next
There is still plenty of water to go under the bridge with the proposal. There has (and will continue) to be significant industry lobbying to iron out some details not fully addressed in the draft legislation. Areas such as non-indexation of the threshold-defined benefit funds, and the inclusion of unrealised capital gains and losses are just a handful of the identified concerns.
We stress this proposal remains draft legislation and has not made its way to the floor of Parliament. We will continue to closely monitor the proposal and keep you abreast of any changes.
If you would like further details or assistance with respect to any of the above changes, or superannuation in general, please contact your adviser.
