With the federal election now concluded and the re-elected government confirming its commitment to proceed, the proposed $3 million superannuation tax seems increasingly likely to become law. Although it remains a proposal, many Australians with higher-value super balances are already moving to restructure their wealth in response, highlighting the potential scale of impact this tax could have if legislated.
We are cautioning people potentially affected not to act without seeking advice as taking money out of super now may be unnecessary and/or could cause other income tax or capital gains tax consequences that are potentially worse than the $3 million Division 296 tax.
Ten things you need to know:
1. Start date?
The legislation was proposed to start on 1 July 2025, meaning that people just have to make sure that their super balance is less than $3M by 30 June 2026 to avoid any extra tax (IF that’s the best strategy!). Lobbying has already started, saying that 1 July 2025 is too soon for super funds to build the necessary software and systems in time, and therefore, they are asking for the start date to be pushed back to 1 July 2026.
2. Tax rate?
Currently, super earnings on a pension account are tax-free. Earnings on accounts still in the accumulation phase are taxed up to 15%. The government intends to apply an additional 15% tax (Div 296 tax) on earnings attributable to super balances above $3 million. There is no additional tax on the investment earnings of your first $3 million of super (but see below re how the $3 million is calculated).
3. What is the maximum super account balance?
The new tax will apply when a person has a Total Super Balance (TSB) of more than $3M BUT the way the TSB will be calculated for Div 296 purposes will not necessarily be the same as the current TSB (used for other purposes) – particularly for people with Defined Benefit Pensions. For example, the TSB value of a defined benefit pension is calculated as 16 times the starting annual pension. The process for valuing a defined benefit pension for the $3M Div296 purposes is still to be confirmed. Still, it is proposed to operate on a similar basis as valuing one for Family Law Court purposes, ie it will take into account the life expectancy of the pensioner. A $100,000 pa pension for a 60-year-old will have a much higher value than a $100,000 pa pension for an 80-year-old.
4. What is taxed?
The Div 296 tax will be applied to the proportion of the super fund’s earnings that are attributable to the account balance (TSB) over $3M. And, the way the earnings are going to be calculated for Div 296 purposes is different to how normal taxable income for the super fund is calculated. It is proposed to include unrealised gains—that is, changes in the value of your super assets, even if they haven’t been sold (so no cash to pay the tax with; and no refund if the values drop next year!). Taxing of unrealised gains is something that has never been done before for many good reasons. There has already been a lot of lobbying by industry bodies (hence, legislation hasn’t been approved yet). This lobbying is expected to intensify over the coming months to ensure that even if the bill is passed, it won’t include the taxing of unrealised capital gains.
5. Will the cap be indexed?
There is currently no provision for the $3 million cap to be indexed, meaning more individuals may be captured over time as balances grow. The Treasurer, Jim Chalmers, is currently refusing to change this.
6. Who pays the extra tax?
The 15% Div 296 tax will be charged to you personally but you’ll be able to get the super fund to pay it for you out of your superannuation account balance.
7. How the tax would be calculated?
The ATO would determine your liability based on changes in your Total Superannuation Balance (TSB) from one year to the next.
The draft formula is:
Earnings = TSB at end of year – TSB at start of year + withdrawals – contributions
Suppose your balance has increased AND exceeds $3 million by the end of the year. In that case, the proportion of those earnings relating to your super above $3 million will be hit with the extra 15% $3 million Division 296 tax, even if those earnings relate to unrealised capital gains.
8. Who could be affected?
- Individuals with $3 million or more in total super across all accounts (and calculated according to the proposed new formula for TSB).
- Professionals and business owners in their 40s–60s, who are still actively contributing and experiencing strong growth, may be on track to have more than $3 million in their super account when they retire.
We think that the Government has seriously underestimated the number of Australians that it will impact from day 1, and that number will rise over time due to the non-indexed threshold.
9. Key risks and considerations?
- Cashflow mismatch: You may face a tax bill without any corresponding income to fund it.
- Double taxation: Without clear safeguards, there’s a risk that unrealised gains could be taxed now and then again when realised.
- Reduced appeal of super: The change may impact decisions around future contributions, estate planning, and how retirement income is structured.
10. What should you do now?
It’s still early, so please don’t rush into selling any assets yet! You have at least until 30 June 2026. However, this is the ideal time for high-balance super holders to seek expert advice to get clarity and take a strategic look at their personal position. Our advisers can help you by:
- Modelling future tax impacts of both the impact of the $3 million Division 296 tax and on alternative investment strategies. The impact may not be as bad as you think! Or, at least, you will know what you are comparing alternative strategies to.
- Review your SMSF holdings for liquidity and valuation volatility issues and develop strategies to minimise adverse cash flow consequences from unrealised capital gains. This will be particularly important for members who can’t withdraw from super yet.
- Maximising your tax free pension (up to your Transfer Balance Cap)
- Review your superannuation contribution strategies. Explore whether future voluntary contributions are wise, whether they should be split with your spouse, or whether building wealth outside super may be more efficient now.
- Consider alternative investment structures, such as ownership by spouse, a family trust, or a private company, to hold growth assets outside the superannuation system.
- Considering how this affects your broader estate or legacy planning, some intergenerational wealth transfer could now be effective, but you need to be careful because the distribution of super assets upon death can fall outside your will.
We know how much work it takes to build substantial superannuation wealth. This proposed tax marks a significant shift—and we’re here to help you respond with confidence, not fear.
Whether you are close to or already over the threshold or want to plan, our team can guide you through the implications, options, and alternative strategies to ensure your wealth remains protected and optimally structured.
Speak with an Everalls adviser today to begin your review. Together, we’ll ensure your strategy remains aligned with your goals, whatever the legislation brings.
