You may have heard about legislation currently before parliament that will apply an extra 15% tax on super balances above $3m.   

It is a separate tax levied on the individual (not the super fund), although the member can arrange for the amount payable to be released from their super fund. 

The new tax only applies to individuals whose Total Super Balance exceeds $3m at the end of the financial year. If the legislation passes parliament, the first year that the new tax will apply is the 2025-26 financial year. 

If your total superannuation balance does not exceed $3m at the end of the financial year, then the new tax does not apply for that year. 

Your Total Super Balance includes the total of both your pension accounts and accumulation accounts in superannuation, and the $3m threshold is applied per individual, not per fund. 

What if your Total Super Balance is above $3m? 

If your balance is over $3m, then the earnings need to be calculated to apply the new tax. Different to normal tax, the earnings are calculated based on the change in Total Super Balance between the start and the end of the financial year. The calculation adjusts for withdrawals and contributions, but controversially captures unrealised capital gains. 

If the calculation of earnings is negative, then those “negative earnings” can be carried forward to offset against positive earnings in future years. 

Once the amount of earnings is calculated, it is then proportioned to the amount your Total Super Balance exceeds $3m. The 15% tax is then applied to that proportion over $3m. 

The following is an example of how the tax may apply: 

Carlos is 69 years old and is retired. He holds all his superannuation entitlements in an SMSF. 

Assume the following facts relating to Carlos’ superannuation entitlements:

• Carlos had a TSB of $5.5 million on 30 June 2025.
• Carlos had a TSB of $6 million on 30 June 2026.
• During the 2026 income year, Carlos withdrew $150,000 from his fund (comprised of pension payments from his pension interest and a lump sum benefit from his accumulation interest). 
• Carlos made no contributions into superannuation during the 2026 income year.

Carlos determines his liability for the proposed 15% earnings tax as follows: 

Step 1: The proposed 15% earnings tax applies to Carlos for the 2026 income year, because he has a TSB of over $3 million at the end of the 2026 income year (his TSB is $6 million). 

Step 2: Earnings for the 2026 income year are $650,000 (i.e., calculated as (($6 million plus $150,000) – $5.5 million)). 

Step 3: Proportion of earnings subject to the proposed 15% earnings tax is 50% (i.e., calculated  as (($6 million – $3 million) divided by $6 million)). 

Step 4: Carlos’ tax liability for the proposed 15% earnings tax is $48,750 (i.e., calculated as 15% x $650,000 x 50%). 

The $48,750 tax liability is levied on Carlos as an individual (although it is separate from any personal income tax obligations he may have). Carlos can either pay the amount personally or he can arrange for his superannuation fund to release an amount to pay the tax liability. 

The key concern for people such as Carlos is that the growth in the value of his super benefit (from $5.5m to $6m) could have been from the growth in value investments, not from investment income. 

For SMSF investors who hold large commercial properties in their SMSF, this new rule could pose a problem. Consider a situation where an individual has an SMSF that owns commercial property but has little other assets in the fund. Many business owners and farmers are often in this situation.  If the individual has a large tax liability due to this new tax, they either must: 

(1) Find the money to pay the tax personally, or 

(2) Elect to have the tax paid by the super fund. 

But, if they don’t have the cash funds personally to pay the tax or their SMSF does not have sufficient liquidity to pay the tax, then they may be forced to either borrow to fund the tax (not a great idea!) or even be forced to liquidate the SMSF asset. 

What can be done? 

If you are going to be impacted by the new rules, then keep an eye on the passage of the legislation through parliament. If it does pass as is now expected, you and your advisers will need to start making arrangements. 

Options open for consideration could be: 

(1) Withdraw superannuation and invest elsewhere.  

• The ability to withdraw from super is not automatic and you must be eligible to withdraw under superannuation legislation.
• Tax on investment earnings outside super needs to be considered and contrasted with the new tax payable on super benefits.
• The withdrawal would need to be made prior to 30 June 2026 to ensure your Total Super Balance is below $3m at that date. 

(2) If eligible to withdraw from superannuation, review your estate planning strategies to consider bringing forward gifts to beneficiaries. 

(3) If eligible to withdraw from superannuation, consider taking out some of your benefits and re-contributing for your spouse. This can even up balances and maximise each of your benefits up towards the $3m threshold. Don’t forget to consider contribution caps. 

(4) Ensure the proposed tax is factored into any superannuation related decision making. 

• Long-term contribution strategies may need to be reviewed. 
• Re-consider the purchase of properties with future growth potential by your superannuation fund, and perhaps use alternative ownership structures. 
• Consider the cashflow impact of the 15% earnings tax. 

(5) Consider alternative structures to using superannuation, such as family trusts and investment companies.  

Do you need to act now? 

No. The legislation has not yet been passed. Given the way in which the new tax applies to unrealised capital gains, many organisations are lobbying the government to adjust the calculation methodology. In addition, the new tax will not apply until after 30 June 2026.  So, you have over a year to review and make decisions. 

 The key is to seek advice from suitably qualified professionals who can guide your decision making and ensure your affairs are arranged efficiently for the future. 

Please contact one of our advisors if you would like a review of your superannuation position.