Date of article: 20 March 2023
Last updated: 20 March 2023
The Treasurer has announced a proposal to increase the tax on Australian with superannuation balances above $3 million.
Currently, earnings from superannuation in the accumulation phase are taxed at a rate of 15 per cent, and earnings from superannuation in the retirement phase are exempt from tax.
From 2025-26, an additional tax at a rate of 15% will be applied on earnings on balances above $3 million.Treasury calls it a "...headline tax rate on earnings corresponding to that proportion of the balance greater than $3 million to 30 per cent."
The additional tax is effectively a wealth tax – it is calculated based on the increase in a person’s wealth in superannuation, adjusted for withdrawals and contributions. The tax is applied to unrealised gains or losses, not the existing normal method of determining capital gains or losses.
The tax will be assessed by the ATO, and the tax may be paid by the individual or from their superannuation fund.
Earnings are calculated by determining the difference between the Total superannuation balance (TSB) at the start and end of the financial year, adjusting for withdrawals and less contributions.
Importantly, negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.
Calculation formula:
Earnings = TSBCurrent Financial Year – TSBPrevious Financial Year + Withdrawals – Net Contributions
To work out the proportion of earnings that relates to above the $3 million threshold:
Proportion of Earnings = ( TSBCurrent Financial Year – $3 million ) / TSBCurrent Financial Year
The tax liability is determined as follows:
Tax Liability = 15 per cent x Earnings x Proportion of Earnings
Treasury estimates that the proposal will apply to around 80,000 people.
Example:
Warren is 52 with $4 million in superannuation at 30 June 2025. He makes no contributions or withdrawals. By 30 June 2026 his balance has grown to $4.5 million.
This means Warrens’ calculated earnings are:
$4.5 million - $4 million = $500,000
His proportion of earnings corresponding to funds above $3 million is:
($4.5 million - $3 million) ÷ $4.5 million = 33%
Therefore, his tax liability for 2025-26 is:
15% × $500,000 × 33% = $24,750
Note that this tax is in addition to the 15% tax applicable on earnings, being taxable income including capital gains, on the accumulation portion of the fund's assets.
Summary
| Category | Applicable tax | Where tax applies |
| Individual’s retirement phase pension balance | Income and capital gains are exempt from income tax | |
| Individual’s accumulation phase balance | Income and capital gains are taxed at a rate of 15% (capital gains is discounted by 1/3 for asset owned for 12 months or more) | Taxed in super fund |
| Individual’s total super balance above $3 million | Earnings are taxed at a rate of 15%.1 Includes unrealised gains. | Taxed to the individual. Individuals may elect for super fund to pay the tax. |
1 the proposed tax on earnings is in addition to the tax that is applied to the accumulation phase balance, not instead of the tax on accumulation phase.
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