Kiki
The Australian Taxation Office (ATO) has issued a clear warning to high-income earners and wealthy families holding superannuation balances exceeding $3 million. This comes ahead of the government’s new tax rule, which will impose an additional 15% tax on earnings linked to high-value super accounts. Set to be introduced on 1 July 2025, the policy aims to improve the fairness and long-term sustainability of the superannuation system.
Approximately 80,000 individuals, or just 0.5% of super fund holders, will be directly affected. However, concerns are growing that the reach of this new measure could widen over time due to inflation and asset growth—especially since the $3 million cap is not indexed.
Why the ATO Is Implementing the $3M Super Tax
Australia’s superannuation system was designed to support retirement, not to function as a tax-free wealth shelter. With a growing number of individuals accumulating extremely large balances in super, the ATO is addressing what it views as a distortion in tax concessions.
Here’s a breakdown of how the new tax policy is structured:
| Feature | Details |
|---|---|
| Start Date | 1 July 2025 |
| Tax Name | Division 296 Tax |
| New Tax Rate | 15% additional tax on earnings from balances over $3 million |
| Who Is Affected? | Individuals with super balances exceeding $3 million |
| Earnings Definition | Includes both realised and unrealised gains |
| Threshold Indexation | Not indexed to inflation |
| Expected Revenue Generation | Estimated to bring in $2.3 billion annually |
| Number of People Affected | Around 80,000 initially (expected to grow) |
How the Tax Is Calculated
What sets this tax apart is its basis on both realised and unrealised earnings. Even if you haven’t sold an asset and profited from it, the value increase of that asset is considered part of your taxable earnings.
This approach has triggered concerns, particularly among self-managed super fund (SMSF) holders. These individuals often hold property or private equity that may appreciate in value on paper but offer no liquid income until sold. Under this system, they could be liable to pay tax on gains they haven’t yet accessed in cash.
Who Needs to Act Now?
While the tax only impacts accounts over $3 million, those with balances near that mark need to pay close attention. Due to the non-indexed cap, it’s likely that more Australians will fall into this bracket in the coming years—especially amid strong market returns.
Some financial analysts suggest this could serve as a trigger to diversify investment strategies or even withdraw funds, depending on one’s retirement goals. While the ATO isn’t advising anyone to make immediate changes, it has made it clear that compliance will be enforced.
Potential Impacts on Retirement Planning
Here are several concerns raised about the long-term implications of the $3 million super tax:
1. Taxing Unrealised Gains
Taxing paper profits may lead to cashflow issues for account holders—particularly in SMSFs with large non-liquid assets like real estate.
2. Discouraging Super Contributions
The change may dissuade additional contributions to super accounts, especially for those nearing the $3 million mark, which undermines one of the key pillars of long-term retirement saving.
3. Growing Reach Over Time
With no inflation adjustment built in, the real-world value of $3 million will decrease over time, meaning middle-income earners today could be impacted tomorrow.
4. Complexity for Trustees and Advisors
Trustees of large super funds now face the task of re-evaluating their asset reporting, valuations, and annual earnings, adding more complexity to compliance.
Steps You Can Take
If your balance is above or approaching the $3 million threshold, consider taking proactive measures:
- Assess Your Super Fund Balance: Review your latest super statement and project future growth to see if you’re at risk.
- Consult a Financial Planner: A strategic withdrawal or portfolio reallocation might help reduce exposure to the new tax.
- Review Investment Liquidity: Make sure you have enough accessible funds to meet any unexpected tax liability.
- Consider Other Vehicles: High-net-worth individuals may explore family trusts or investment portfolios outside of super.
The ATO’s new tax rule is a wake-up call for Australia’s wealthiest super holders. By imposing an additional tax on earnings from balances over $3 million, the government is signaling its intention to cap tax-advantaged retirement savings.
With no inflation protection, more Australians could be pulled into this tax bracket over time. Individuals and families affected—or even approaching the threshold—should take early action to align their strategies with the changing landscape.
FAQs
When will the $3 million super tax begin?
The tax is set to begin on 1 July 2025.
Will the $3 million cap increase with inflation?
No, the threshold is not indexed, meaning it stays fixed and may affect more people over time.
Who will be taxed under this new rule?
Anyone with a total super balance above $3 million, including both individuals in public funds and SMSFs.