Feb 15, 2024 Joel Hernandez

30% tax on super earnings above $3m

Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality.

The draft legislation appears largely unchanged from the Government’s original announcement.  At this stage a number of peak bodies have made submissions to Treasury in relation to concerns with the proposed legislation.

The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

As the draft legislation currently stands, the tax that will apply to earnings in superannuation will be as follows:

• up to 15% on earnings on balances below $3 million; and
• up to an overall 30% on a percentage of earnings equal to the percentage of superannuation balances above $3 million.

 

In the case of TSB’s above $3m, the new additional tax will be charged to the individual member, not the Fund.

TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

While we are a step closer to reality, there is still some water to go under the bridge before the final rules are determined.  For clients with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle.