Big Super = Bigger Tax: The New $3Million Rule Effective 1 July 2025

The Australian Government has introduced a new tax measure, known as Division 296, targeting high superannuation balances.

Starting 1 July 2025, the government will start charging an extra15% tax on a portion of your superannuation earnings (both realised and unrealised) for individuals whose total superannuation value exceeds $3 million. This bumps the tax rate up from 15% to 30% on that portion of earnings.

Let's break it down.

Why it Sucks (sorry, as an Accountant I'm supposed to be neutral, but)

This $3m threshold takes into account Unrealised Gains, which means, even if your investments only go up in value but you haven’t sold it for profit, you could still be taxed on that value growth.

How Does it Work?

Let’s say your total super value is $4million (think a portfolio that consists of investment properties and/or shares/stocks), so you have $1million above the $3million threshold. $1million of the $4million total is 25%. So, only 25% of your super earnings for the year would get hit with the higher tax rate.

What's taken into account, including but not limited to:

• Dividends and interest (the usual stuff),

• Capital gains if you sell assets,

• And the value increase in assets you haven’t sold (like property or share values going up).

  
  

Again, Why it Sucks

Because:

• You can be paying tax on money you haven’t actually made yet.

• If your super holds things like properties (common in Self-Managed Super Funds), you may owe extra tax simply because your properties go up in value, even if you haven’t sold those properties.

• You might have to sell some assets that you would've otherwise kept, just to cover the tax bill, which is not an ideal strategy for some investors.

Some Things to Keep in Mind

• The $3 million limit is not indexed to inflation, meaning it is currently a fixed number, which won't go up with inflation (at least for now). So over time, more Aussies could be affected as their super grows.

• The legislation is scheduled to take effect from 1 July 2025, with the first assessments based on superannuation balances as of 30 June 2026.

  
  

What can you do?

In this situation, unfortunately not much. But if your super balance is getting close to $3 million, you might want to:

• Get help from your Accountant to do some preliminary calculation if you're considering adding more into your super if it’s going to tip you over.

• Look into other ways to invest outside of super.

  
  

It’s a big change, especially for those who’ve been building up their super for years. Make sure you understand how it could affect you or your future self, and as always, get advice if you’re not sure.

General Advice Disclaimer

The information provided on this website is intended for general informational purposes only and should not be construed as professional advice. The advice and recommendations on this site are not intended to replace individual consultations with a qualified professional.

The application of tax, accounting, and business advice varies depending on personal circumstances, and the laws, rules, and regulations are subject to change. Therefore, readers should not rely solely on the content provided, and should always seek professional guidance tailored to their specific needs before making any decision.

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