The media has called the forthcoming (but still not finalised) tax on super balances over $3 million as a 30% tax. In fact, it is two taxes of 15% that work differently.

For those 85,000 or so taxpayers who are fortunate enough to have their super balances above this $3 million amount, there is a whole new tax regime to consider. This is not an additional rate for earnings on member balances above $3 million, but a whole new tax entirely.

Treasurer Jim Chalmers described the tax as a “modest adjustment”.

The new tax is a value change tax. After allowing for contributions and withdrawals, this is simply a tax on difference between the member balance at the end of a year and the balance at the start of the year. In other words, a tax on the value change. Not just on dividends and interest. Value change on the portion above $3 million times 15%.

Simple example.

• A member’s super balance at 1/7/25 is $5 million.
• That member’s balance at 30/6/26 is $6 million.
• No contributions, no withdrawals during the year.
• Value went up this year by $1 million.
• As half the fund is above $3 million, the new tax of 15% is imposed on half the value increase. Or $500,000 x 15% or tax of $75,000.
• Plus, the previous super fund taxes.

Fluctuations in share markets, property values or differences in valuations of assets can cause significant tax liabilities to arise even though not a single profit was realised.

Unrealised profits will still attract this tax. Even if the values subsequently fall.

Many super funds may not have the liquidity to pay these taxes and this new tax could force the liquidation of assets. As a small compromise, this tax can either be paid by the super fund or the member personally.

There appears to not be any inclusion of a Capital Gains concession into the calculations either. The $3 million threshold is not indexed and over time, ‘bracket creep’ will push more and more members into this new tax.

For the very first time since in Australian tax history, it makes sense to consider whether retirees might be better off keeping super balances over $3 million in different entities or even their own names!

Obviously, this will depend on individual circumstances, but given that the super pension for retirees is already tax exempt, and that many retirees may have low taxable incomes, and that as individuals, they also qualify for CGT concessions, a careful analysis of relative tax outcomes might see changes in super strategies.

Speak to your Investment Adviser as this law gets closer.

It is worth noting that there will be another election before this becomes law and this proposed legislation is still subject to consultation. But with around $3.5 trillion sitting in super in Australia and much of it concessionally taxed, it is only a matter of time before governments look to tax this pot of gold to solve their fiscal needs.

After all, the Federal Government has nearly a $900 billion debt hole to fix and a lot of submarines to pay for.