Super balances above $3 million to be taxed at 30% – what does it mean?

The Albanese government have announced plans which will see the earnings on super balances above $3 million taxed at a concessional rate of 30 per cent, from 1 July 2025 onwards. The current rate on these earnings is 15 per cent.

This is initially likely to affect just 0.5 per cent of Australians with super accounts. They will still pay a 15 per cent tax rate on earnings on their retirement savings up to $3 million, but will have to pay the higher tax rate on the remainder.

How does the new super tax rate work?

The measure is only dealing with the tax rate on the investment earning’s in your superannuation fund. Currently, when you’re still working and adding money to super (called the accumulation phase) the earnings from your super investments are taxed at 15 per cent. As part of the proposed changes, the tax rate on earnings will double to 30 per cent for super balances above $3 million. Importantly the tax rate during the pension (or retirement phase) will remain at nil on the first $1.7 million (your transfer balance cap).

Effectively, this creates a three tiered system for earnings:

TIERTAX RATE
Up to $1.7 million in the pension (retirement) phase0%
Up to $3.0 million in the accumulation phase (less any pension balance)15%
Over $3.0 million total balance (combined pension/accumulation balances) 30%

What does it mean?

“We await further detail but the obvious sting in the tail is the $3 million threshold will not be indexed. This will mean that, over time, more people will be impacted. The government is estimating that one in 10 people retiring in 30 years will have a super balance above $3m and would be taxed at the higher rate. At this stage we have a policy announcement only and there is sure to be further debate and possibly some changes before the draft bill is released.”

Gareth Atkins Chartered Accountant Devonport Tasmania
Gareth Atkins, Director

Contact one of our advisers now if you would like to discuss your superannuation situation.