The Government has announced that they intend to change tax concessions on certain superannuation accounts if you have a total super balance of more than $3 million. While it is important to understand that this is just a proposal at this time, we understand that you may have some questions about whether this proposal could apply to you.
At this stage, the measure is a proposal only and has not been made law. The information included below is based on the announcement made on 28 February by the Government and a Factsheet that has since been released by Treasury with some additional information. The Government has stated that they intend to consult further on this proposal, and additional changes may be made.
What is proposed to change?
Currently, tax on investment earnings within the accumulation phase of superannuation is at a maximum rate of 15%. It is proposed that for certain individuals with a ‘total super balance’ (TSB) that exceeds $3 million, an additional tax of 15% will apply on a portion of ‘accumulation’ account earnings from 1 July 2025.
Your TSB is the sum of all amounts you have in the superannuation system*. An accumulation account is a superannuation account that you have prior to retirement or commencing an account-based pension, which may receive personal, employer and other contributions.
If your TSB is less than $3 million, this proposed change will not impact you, and investment earnings on your accumulation balance will continue to be taxed at the maximum rate of 15%. The proposed change will not apply to earnings in a ‘retirement phase pension’, where earnings are taxed at 0%.
* Exceptions and modifications may apply. Calculating TSB can be complex, so it is important to seek advice.
What else has come to light?
Since the initial announcement, we now understand the measure is limited to those individuals who have more than $3 million in super at the end of a financial year. Since it’s not due to start until 2025/26, it’s the balance in super at 30 June 2026 that matters initially. Presumably someone with an enormous super fund in 2025/26 who withdraws everything over $3 million in June 2026 will not be impacted.
And note that it’s $3 million per person, not per fund. That means a couple could still have nearly $6 million in super before being impacted, as long as it’s split evenly between them and neither goes over $3 million.
The $3 million won’t be indexed – so it won’t increase with inflation each year. Clearly in future years, this will be worth a lot less than $3 million today, capturing a lot more people who may not feel that they are particularly wealthy. Consider, $3 million in 2023 was worth around $1.8 million in 2003. And that’s why most super thresholds are automatically set to go up with inflation.
It won’t be introduced as an adjusted tax rate on the taxable income earned by super funds (that’s how the original press release presented it). Instead, for people subject to the new rules, there are three essential elements:
- There will be a new, special extra tax (at 15%) on some of their super fund’s earnings
- The tax will be levied on the member personally, not their fund
- They will be allowed to take money out of their fund to pay it.
For those familiar with “Div 293” tax, the last two elements will feel familiar. But the two key terms are those in bold above – just some of the fund’s earnings will be taxed and earnings for this purpose has a special definition. Perhaps most importantly, it is completely unrelated to the actual taxable income earned by the fund.
The Government intends to include defined benefit funds in the measure. However, because defined benefit funds operate differently to other types of super funds such as public offer funds and self-managed super funds (SMSFs), there will need to be further discussion with the industry to work out how defined benefit funds will be captured.
What should I do now?
For many people with super balance above $3 million, superannuation may still offer concessional tax rates on earnings when compared to a marginal rate of tax, which could be as high as 47%. Of course this will be different for everyone and may even change as personal circumstances change.
It is important to remember that this is currently a proposal only, and the Government has stated that they intend to consult further on this. Given the reaction across the country, we expect changes to be made before formal submission to parliament.
For now, we recommend you focus on what you can control:
- Build your financial independence without reliance on one particular tax framework;
- Diversification across both Australian and Global markets; and
- Most importantly, design your financial and wealth management around your ideal life.
At WARR HUNT, we aim to provide the right combination of structure and flexibility in your financial and wealth management to help you cope with policy change. If you would like to discuss your financial and wealth strategy further, do not hesitate to contact us on 9935 0970 or at admin@warrhunt.com.au.
Anthony Warr - “It’s an absolute privilege to guide our clients in their financial and wealth management, and knowing that we play a part in them living a happy and fulfilling life”