A major shift is on the horizon for Australians with high-value superannuation accounts. Starting July 1, 2025, the government will introduce a controversial tax increase on super balances exceeding $3 million.
This has caused widespread concern among retirees and high-net-worth individuals who have spent decades planning their financial futures.
Financial experts are urging those affected to be proactive, not panic. While the change only affects a small portion of the population for now, the lack of indexation could drag more Australians into the net in the coming years.
What Is the $3 Million Super Tax?
Under the current system, earnings in superannuation are taxed at 15%. With the new rule, any earnings on the portion of a super balance above $3 million will be taxed at 30%, effectively doubling the tax rate on that portion.
This applies specifically to individuals in the accumulation phase, not those already drawing down in the pension phase. The new tax is not levied on the full super balance—only on the amount above the $3 million threshold.
Who Will Be Affected?
At the outset, this change will impact approximately 80,000 Australians, or about 0.5% of all superannuation account holders. These are individuals who have accumulated more than $3 million in their retirement savings—often after decades of consistent contributions and investment growth.
However, there’s a growing concern that more Australians could be affected in the future because the $3 million threshold is not indexed to inflation.
That means as wages and super balances grow over time, more people—especially younger Australians—may find themselves exceeding the cap without making any changes to their savings strategy.
Average Super Balances Today
| Group | Average Balance | Median Balance |
|---|---|---|
| Men | $182,667 | $66,159 |
| Women | $146,146 | $52,075 |
These figures show that the average Australian is far from the $3 million threshold, but projections suggest that a 22-year-old today could surpass $3 million by retirement due to compound interest and inflation.
Why the Controversy?
Financial planners argue that the change could feel like a penalty for playing by the rules. Many Australians approaching or surpassing the $3 million mark have carefully built their super over decades, adhering to government guidelines and making personal sacrifices.
Seeing the tax rate jump to 30% on their hard-earned savings has created a sense of unease, especially among those nearing retirement.
While the tax does not affect the first $3 million, the psychological and financial impact of the change has prompted many to revisit their retirement plans.
Proactive Strategies to Manage the Change
If you’re approaching the $3 million mark or have already crossed it, there are several strategies that financial advisers recommend:
- Withdrawal Planning: Carefully planned withdrawals may help keep balances below the cap, minimizing exposure to the higher tax.
- Diversify Investments: Consider holding assets outside of superannuation, particularly those expected to generate high returns, which could otherwise attract the 30% tax.
- Self-Managed Super Funds (SMSFs): For those seeking greater control, SMSFs can offer flexibility and more tailored strategies to manage tax liabilities.
- Estate Planning: Revisiting estate structures can ensure your wealth is passed on in the most tax-effective way possible.
Ultimately, these strategies depend on your age, life goals, income level, and family circumstances, so consulting a professional adviser is key.
Key Details of the Super Tax Change
| Factor | Details |
|---|---|
| Tax Rate Before | 15% on earnings |
| New Tax Rate (Above $3M) | 30% on earnings |
| Threshold | $3 million (not indexed) |
| Affected Population | 80,000 (0.5% of Australians) |
| Effective Date | July 1, 2025 |
| Applies To | Accumulation phase only |
| Strategies | Withdrawals, diversification, SMSFs |
The upcoming $3 million superannuation tax change is a major development in Australia’s retirement landscape. While the change will initially affect a small group, the long-term implications are far-reaching due to the non-indexed threshold.
Being proactive rather than reactive is crucial. Whether it’s through withdrawal planning, diversification, estate structuring, or SMSFs, there are practical ways to manage the new tax rules.
Staying informed and regularly reviewing your financial plan will be key to maintaining control over your retirement goals.
For most Australians, this change may not apply now—but staying ahead of the curve is the smartest way to protect your future.
FAQs
Does the tax apply to my entire superannuation balance?
No, the 30% tax only applies to earnings on the portion of your super balance exceeding $3 million. The first $3 million remains taxed at the regular 15% rate.
Will the $3 million cap be adjusted for inflation?
No, the cap is not indexed, meaning it remains fixed at $3 million regardless of inflation or increases in average super balances.
What can I do to avoid or reduce the impact of the new tax?
You can explore options such as strategic withdrawals, diversifying assets outside of super, or establishing an SMSF. It’s recommended to consult a licensed financial adviser for personalized planning.