Super balances over $3 million will see tax rate double to 30% by 2025

Recently, the Australian Treasurer, Jim Chalmers confirmed that individuals with superannuation balances over $3 million will see their tax rate double to 30% from 2025-26.

Currently, earnings from superannuation are taxed at a rate of up to 15%. This new proposal means that 99.5% of Australians with super will continue to receive the same generous tax breaks. Whilst 80,000 individuals with balances above $3 million will have a heftier 30% tax bill.

There has been significant controversy around the new tax proposal, with the Opposition vocalising its intent to block any potential changes.

Although the Labour Government has not yet finalised the changes regarding the new threshold, we can expect the following implications for affected individuals.

Implications for individuals with super above $3 million

  1. Individuals with total superannuation balances over $3 million (pension and accumulation balances combined) will pay a higher tax rate of 30% on their earnings above the $3 million threshold from the 2025-26 FY.
  2. Currently, only realised capital gains after an asset is sold are taxed within the super fund (at a discounted rate if held for 12 months or more) and unrealised capital gains are not subject to tax at all. One of the most controversial parts of the proposal is that ‘earnings’ will include unrealised capital gains and the extra tax applied. Any unrealised capital losses can reduce a future year’s earnings for this extra tax.
  3. The proposed extra tax does not allow for a reduction to reflect amounts in the tax-free pension phase.
  4. Considering the new proposal, affected individuals may need to adjust their retirement plans and investment strategies. Adjustments may include considering alternative investment options outside of superannuation or restructuring to ensure individuals remain within the $3 million threshold to avoid the higher tax rate.

How can Morrows help?

We will continue to monitor the changes as they are announced and keep you informed.
In the meantime, if you have any questions about the implications for you and how it affects your superannuation or investment strategies, please contact your Morrows advisor.


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