The New Super Tax: Understanding the Changes for Balances Over $3 Million
For years, superannuation has been championed as one of the most tax-effective environments for growing retirement savings. However, significant changes are on the horizon for Australians with large super balances.
The government has introduced a new law, Division 296, which will apply an additional tax to the earnings on superannuation balances exceeding $3 million. This is one of the most substantial changes to super policy in recent years, and if you have a significant balance, you need to understand how it will affect you.
This guide breaks down what the new tax is, who it applies to, and what you should be considering in your financial strategy.
What is the Division 296 Tax?
From 1 July 2025, the government will introduce an additional 15% tax on investment earnings for individuals whose 'Total Superannuation Balance' (TSB) is over $3 million at the end of a financial year.
This means the tax rate on these earnings will effectively rise from the standard 15% to 30%.
Standard Rate (below $3m): 15%
New Rate (on earnings above $3m): 15% + 15% = 30%
It's important to note this is not a tax on your entire balance. It is a tax on the earnings corresponding to the portion of your balance that exceeds the $3 million threshold.
The Most Controversial Part: Taxing "Unrealised Gains"
One of the most debated aspects of this new law is how the "earnings" are calculated. The calculation is based on the movement in your Total Superannuation Balance from one year to the next, after adjusting for contributions and withdrawals.
What this means is that the tax will apply to both realised gains (from selling assets) and unrealised gains (the increase in the value of assets you still hold).
For example, if your property or share portfolio within your Self-Managed Super Fund (SMSF) increases in value but you haven't sold the assets, that growth can still be subject to the new tax. This is a fundamental shift that requires careful financial planning.
Key Questions Answered
Who is affected? Anyone with a Total Superannuation Balance over $3 million on 30 June 2026 and onwards. This includes balances in accumulation phase, retirement phase (pensions), and defined benefit schemes.
When does it start? The first assessment of this tax will be for the 2025-2026 financial year. This means the ATO will look at your balance on 30 June 2026 to calculate the first liability.
How is the tax paid? The tax will be levied directly on the individual, not the super fund. You will receive a notice of assessment from the ATO. You have the option to pay the liability from your own pocket or elect to have the money released from your superannuation fund.
Is the $3 million threshold indexed? No. The threshold is frozen and will not be indexed for inflation. This means that over time, more Australians will naturally exceed the cap as their super balances grow.
What Should You Be Doing Now?
With the 1 July 2025 start date fast approaching, now is the time for proactive planning, not last-minute reactions.
If your super balance is approaching or already over the $3 million threshold, you should be considering:
Contribution Strategies: Is it still beneficial to make contributions to super, or should excess cash flow be directed to other investment structures like a family trust or investment company?
Asset Allocation: Given that unrealised gains are taxed, the types of assets you hold in your SMSF may need to be reviewed.
Withdrawal and Recontribution: There may be strategies available for managing balances between spouses to stay under the threshold.
This new tax landscape makes professional, strategic advice more critical than ever. Navigating these changes requires a deep understanding of your personal financial goals and the intricate rules of both superannuation and tax law.
If your superannuation balance is over or nearing $3 million, don't wait. Contact the expert team at LKC Accountants today to schedule a strategic review. Let's ensure your retirement savings are structured for optimal growth in this new regulatory environment.
