by Luke Quinnell

Since the election, the government’s proposed changes to superannuation have received heavy coverage in the mainstream media, with many commentators voicing concern.

While most people agree that imposing extra tax on super balances over $3 million is reasonable, there are three highly controversial elements:

• Tax on Unrealised Gains: This means being taxed on paper increases in value – even if no assets are sold.
• No Refunds for Negative Returns: If your super balance drops, you won’t get a refund. Instead, the losses are “quarantined” to offset future gains.
• No Indexation: The $3 million threshold isn’t indexed, so more people will be affected over time.

The policy is expected to affect only a small number of Australians – those with more than $3 million in their superannuation accounts. However, the proposal to tax unrealised gains is unprecedented and has sparked significant backlash. Critics argue that this could set a concerning precedent for taxing unrealised gains in other areas.

Current Status

The proposed changes did not pass into law before the election was called. While the Labor government has confirmed its intention to move forward with this policy, we still don’t know exactly what the final legislation will look like – or whether it will be ready in time for the proposed start date of 1 July 2025.

How The Proposed Extra Tax Is Calculated

• Starting 1 July 2025, if a member’s total superannuation balance (TSB) exceeds $3 million at the end of a financial year, the increase in their TSB – after accounting for contributions and withdrawals – will be used to calculate “taxable super earnings.”
• These taxable earnings will be taxed at 15%, and only the proportion of earnings related to the balance above $3 million will be subject to this tax.

Example:

If your super balance increases from $3.5 million to $3.7 million, the total earnings for the year are $200,000.

To calculate the tax:

• The portion of the balance above $3 million is $700,000
• The total balance is $3.7 million

So the tax = (700,000 / 3,700,000) × $200,000 × 15% = $5,675

This means the more your balance grows – and the larger the amount over $3 million – the higher your tax liability under the proposed Division 296 rules.

Market Reaction and What to Do

There’s growing concern that people are already withdrawing or restructuring their superannuation due to fear of the proposed changes – often without a full understanding of the tax implications or whether alternative investment options are actually better.

That said, this may be part of the government’s intention. The official purpose of superannuation is to “preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

It’s important to stay calm and informed. Even if the new rules are implemented exactly as proposed, superannuation remains the most tax-effective investment structure for most people. For many, doing nothing at this stage is the best course of action.

Some people may benefit from reducing their balance below $3 million – but there’s still time to assess this. The legislation isn’t final, and it’s increasingly unlikely to be ready by 1 July 2025.

Also, if you’re planning to withdraw funds to get below the $3 million threshold, you’ll still have until 30 June 2026 under the current proposal to do so.

Final Thoughts

Don’t panic. The proposed tax changes may affect you, but the final rules are still uncertain, and the superannuation system remains highly advantageous for most Australians.

Stay informed and avoid making drastic decisions until the legislation is final.

Watch this space!

If you’d like to discuss your situation, get in touch with us below or call 02 4969 6600.