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Superannuation: Adjusting to a New Tax

Date: 23 August 2023

There’s a good chance you have read in the media about the proposed introduction by the Government of a higher rate of tax for people with superannuation balances above $3 million.

Any member with a total super balance (all your superannuation accounts combined) of $3 million or more as at 30 June 2026 will be impacted. This will be regardless of how much is in pension phase vs accumulation phase. This proposed extra tax will see these higher balances taxed at an additional 15%, bringing the total tax rate of 30%. However, contrary to what some articles may lead you to believe, the total balance will not be taxed at 30%. The current proposal is to tax the proportion of earnings over $3 million at an extra rate of 15% from 1 July 2026.

For example, a member with an account balance of $4 million and $100,000 in earnings will have 25% (only $1 million of the total $4 million is above this threshold) of the earnings, so $25,000 taxed at 15%, leading to $3,750 in extra tax.

This extra tax liability will be assessed to the individual and you will have the option to release money from your super balance to pay the tax liability, much like Division 293 tax on high income earners.

What has caused the most contention is the way the ‘earnings’ have been proposed to be calculated. The current formula is ‘Opening balance, less contributions, add withdrawals, less closing balance’. A major concern is that this includes unrealised capital gains. It remains to be seen if the draft legislation is amended to remove this but it is expected it will need to be.

Another key part of the draft legislation is that this $3 million threshold is currently not going to be indexed over time, to allow for inflation increases. $3 million in 2026 is worth approximately $2.5 million in today’s dollars, so over time more people will be caught by this threshold.

It is important to note that this is still a proposal from the Government and may go through various changes before becoming legislation.

For further clarification please contact our SMSF Specialists team at Roberts + Morrow on 6774 8400.

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To get in touch with our team, start by emailing us at enquiries@rm.net.au

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