Understanding the New $3 Million Super Balance Tax: Your Questions Answered

The Federal Government has recently announced significant changes to the proposed tax on superannuation balances exceeding $3 million (per member – not fund). This redesign addresses many of the concerns raised by the community about the initial proposal. Here’s everything you need to know in a straightforward Q&A format.

What is the $3 million super balance tax?

The $3 million super balance tax is a proposed measure by the Federal Government to apply an additional tax on earnings for people with superannuation balances above certain thresholds. Originally announced as a flat 15% tax on earnings above $3 million per member (not fund), the proposal has been significantly redesigned to address community concerns and make it more workable.

What were the main problems with the original proposal?

The initial proposal had two major contentious elements that drew criticism:

1. Taxation of unrealised gains: The mechanism calculated “earnings” based on the movement in a member’s total superannuation balance across a year, meaning you could be taxed on paper gains that hadn’t actually been realised.
2. No indexation: The $3 million threshold was fixed with no indexation, meaning more people would be caught by the tax over time simply due to inflation, not actual wealth growth.

These issues made the original proposal unworkable for many Australians with large super balances.

What are the key changes in the new proposal?

The redesigned proposal includes four major improvements:

1. Two-tier system: Instead of one threshold, there are now two tiers—one at $3 million and another at $10 million.
2. Indexation: Both thresholds will be indexed, ensuring the tax keeps pace with inflation and doesn’t unfairly capture more people over time.
3. Different tax rates: An additional 15% tax applies to earnings on balances between $3 million and $10 million, while a 10% additional tax applies to earnings on balances above $10 million.
4. Taxation on realised earnings only: This is the most significant change—the tax will now only apply to realised earnings, not unrealised increases in asset values.

When will the new tax start?

The start date has been pushed back to 1 July 2026. The first assessments are expected to be issued in the 2027-28 financial year, based on super balances as at 30 June 2027. This gives affected individuals additional time to understand the proposal and plan accordingly.

How will “realised earnings” be calculated?

This is one of the key unknowns at this stage. The Federal Government has stated that people will be attributed an appropriate share of realised earnings on a “fair and reasonable basis” using existing reporting mechanisms where available.

However, there are many unanswered questions about how the calculation will work, including:

• How discount capital gains will be treated
• How exempt fund earnings will be incorporated
• How franking credits will be handled
• Whether existing unrealised gains will be taxed when the CGT event occurs after the new proposal is enacted
• Whether there will be any cost base reset for fund assets

We’ll need to wait for draft legislation to understand these critical details.

Who will be affected by this tax?

The tax will affect individuals with total superannuation balances exceeding $3 million. However, the impact will vary depending on whether your balance is between $3 million and $10 million, or above $10 million, due to the two-tier structure.

Can you give me an example of how this might work?

The Federal Government provided two examples:

Example 1: Megan – both APRA-regulated fund and SMSF interests Megan has interests in both an APRA-regulated fund and a Self-Managed Super Fund (SMSF). The new proposal would assess her combined super balance across both funds to determine if she exceeds the thresholds and calculate the appropriate tax on her realised earnings.

Example 2: Emma – SMSF member with over $10 million Emma has an SMSF with a balance exceeding $10 million. Under the new proposal, she would pay the additional 15% tax on realised earnings for the portion of her balance between $3 million and $10 million, and the additional 10% tax on realised earnings for the portion above $10 million.

Is this definitely happening, or could it change further?

There is no formal or draft legislation yet, so the details could still change. The Federal Government has announced the framework, but as always, “the devil will be in the details.” The specific mechanics of how realised earnings are calculated will be crucial to understanding the true impact of this tax.

Should I take action now to restructure my super?

The better approach for most people will likely be to wait and see what eventuates before acting. Here’s why:

1. There’s no draft legislation yet, so we don’t know all the details
2. The start date has been pushed back to 1 July 2026, giving you more time
3. The first assessments won’t be issued until the 2027-28 financial year
4. Acting now based on incomplete information could lead to unnecessary restructuring or unintended consequences

That said, individuals with large super balances should continue to monitor the progress of this proposal and consider what their strategy may be once more details are available.

Is this a better proposal than the original?

Yes, unquestionably. This redesign represents a move in the right direction and demonstrates that the Federal Government has listened to community concerns about the initial proposal. The shift to taxing only realised earnings, the introduction of two tiers, and the inclusion of indexation address the most problematic elements of the original design.

However, we still need to see the full details in draft legislation to properly assess how workable the new proposal will be in practice.

What should I do next?

Here are the recommended next steps:

1. Monitor developments: Keep an eye out for draft legislation or further announcements from the Federal Government.
2. Don’t rush: Given the delayed commencement date, there’s time to understand the proposal before taking action.
3. Seek professional advice: If you have a super balance approaching or exceeding $3 million, speak with your financial adviser or accountant about your specific circumstances.
4. Review your strategy: Once more details are available, consider whether any adjustments to your retirement or investment strategy are warranted.
5. Stay informed: Subscribe to updates from trusted financial advisers or accounting firms to ensure you don’t miss important developments.

Final Thoughts

The redesigned $3 million super balance tax proposal represents a significant improvement over the original plan. By addressing concerns about unrealised gains and the lack of indexation, the Federal Government has created a more workable framework that better balances revenue objectives with fairness to taxpayers.

However, with no draft legislation yet available and many critical details still unknown, it’s prudent to take a wait-and-see approach. The extended timeline until implementation gives you the opportunity to fully understand the proposal and make informed decisions about your retirement savings strategy.

If you’re concerned about how these changes might affect you, now is the time to start conversations with your financial advisers—but not necessarily to take immediate action. Patience and careful planning will be your best allies as this proposal develops.

Need personalised advice? If you’d like to discuss how the proposed super balance tax changes might impact your specific circumstances, reach out to a qualified financial adviser or tax specialist who can provide tailored guidance based on your situation.