The New $3m Super Tax – An Explainer

There has been a lot of talk around the proposal starting 1 July 2025 to tax the proportion of earnings for balances above $3 Million at an extra 15% – It’s called Division 296 tax.

The draft legislation was introduced into parliament in December 2023 but may / will face opposition in the senate particularly around including unrealised gains in the calculation of earnings which is a first in the Australian tax system (aside from some very specific and targeted anti-avoidance attribution provisions).

At this stage, the draft legislation has been referred to the Economic Legislative Committee for analysis and reporting by 10 May 2024.

The three big controversies

  • The plan to include unrealised capital gains in the earnings calculation to be taxed (alternatives that could be looked at is to just have ‘actual earnings ‘or a ‘deemed earnings’ rate)
  • There is no plan to index the $3 Million balance amount.
  • Like companies, losses only carry forward, not backwards; if in year 1 there is positive earnings and there is extra tax paid, there is no refund of tax in year 2 if year 2 happens to have loss / negative earnings.  The loss will carry forward and never be utilised if the fund is in a state of natural decline.

Nonetheless this new proposal (with or without amendments) is likely to be legislated in the next few months (with a start date of 1 July 2025)

Remember that it’s on a per member basis and not a fund basis.  If an SMSF has $7m with 2 members and one person has $6m and the other $1m, then only the one member with $6m is subject to these changes.  The other key point is that it is based on total superannuation, so having $2m in one fund and $2m in a second fund will not exclude someone from these rules.

How it will work

There are 3 parts to the calculation:

(TSB = Total Superannuation Balance)

  1. Earnings (= TSB current financial year less TSB previous financial year + withdrawals – Net Contributions)
  2. Proportion of earnings above $3Million (= TSB current financial year less $3million / TSB)
  3. Tax liability (= 15 per cent x Earnings x Proportion of Earnings)

This is an example of how it will work:

Daniel’s TSB on 30 June 2026 had grown to $3,800,000. On 30 June 2025 TSB was $3,200,000

Let’s say Daniel has had no withdrawals (he hasn’t met a condition of release and is not in pension phase). He made contributions of $300,000.

  1. Earnings will be $300,000 ($3,800,000 less $3,200,000 add $0 (withdrawals) less $300,000 Contributions)
  2. Proportion of earnings above $3Million = 21.05% ($800,000 / $3,800,000)
  3. Tax liability is $9,472.50 (15% x $300,000 x 21.05%)

As you will see from the above, the tax rate above is not actually 15% (for this level of super balance it’s 3.15% ($9,472.5/$300,000).  This tax liability will be assessed directly to the member, and they will have the opportunity to elect for their superannuation fund to pay this amount on their behalf.

In a future article we will explore any opportunities to reduce the tax (such as reducing the total super balance prior to year-end)

If there are any questions regarding the measure or you want to discuss any planning opportunities in relation to it, please contact us.

About the Author
Nick Petaroudas
Nick joined Accru Melbourne in 2011 and has over 15 years’ experience working in the public practice servicing clients in business services. He is our Superannuation Specialist and prides himself on being a Technical Superannuation Expert.
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