Keep a cool head when planning for mooted tax rise on super over $3m

A: It sounds like the government’s 15 per cent tax on super balances above $3 million to apply from July 2025 has caught you by surprise.

Since 2007 there have been many curveballs thrown at super, including the introduction in 2017 of the $1.6 million limit (now $1.9 million) on the amount that can be transferred into a tax-free retirement pension.

Before that, there were the changes in 2007 that restricted super contributions, especially non-concessional amounts, prompting your husband to embark on his contribution approach.

Super rules seem to change regularly and the only way to deal with them is to take them in your stride.

That’s because superannuation is itself a bit of a game; it’s one that requires ongoing decisions from the time you begin saving to when you move to spending.

Your question shows you have a long-term strategy in that you were planning to spend your super by retiring in a few years and converting your balances into pensions then moving to an industry super fund. It’s worth asking yourself, what has really changed?

OK, the 15 per cent tax on member accounts greater than $3 million will mean some extra tax, but so will the 2017 changes under which amounts above the transfer balance cap mean having to pay tax on accumulation accounts.

Brisbane super strategist Darren Kingdon, of Kingdon Financial Group, says what the extra tax for any amounts above $3 million adds is another consideration for your spending strategy. Fortunately, it won’t take effect until July 1, 2025, giving you time to reflect on this. A federal election is due before then, so it’s worth bearing in mind that the change might never come to pass.

But it’s good to be aware of what might change. Let’s say your husband’s super is $3.6 million on June 30, 2026 with a $600,000 excess.

This excess suggests that his account balance 12 months earlier on June 30, 2025 was $3 million, and has grown by $600,000 since then.
According to a calculation method being proposed by the government for the new tax, his proportion of earnings above $3 million will be: $3.6 million minus $3 million divided by $3.6 million. The method compares his previous financial year’s total super balance against his balance 12 months later.

It will see a percentage of excess over $3 million of 16.67 per cent or one-sixth. Hence, 16.67 per cent of notional earnings are taxable.

If the notional earnings for the year was $600,000, says Kingdon, the tax payable will be $15,000 (i.e., $600,000 x 0.1667 x 0.15). This might be less additional tax than most might anticipate, he suggests. If the notional earnings were $200,000 for the year, this would be $5,000 (i.e., $200,000 x 0.1667 x 0.15).

Kingdon says the proposed calculation process does not distinguish between realised and unrealised gains but rather is based on proportional earnings attributable to the balance over the $3 million limit. He can understand why many might not be happy with this.

So, what can you do? Do you want to retire earlier than you planned?

This may give you the ability to withdraw amounts from your super, so you can steer clear of the $3 million cap, Kingdon says.

For someone over 60, there are rules that allow you to access your super like ceasing a gainful employment arrangement on or after age 60.

But as far as making wholesale withdrawals from your super at this stage, Kingdon thinks it might be premature given financial markets can be volatile, and investment portfolios lose value.

The ability to put your money into pension mode (with at least $1.9 million each) will entitle you to tax-exempt investment earnings.

This will include capital gains tax relief that relates to your $1.9 million cap, if assets are sold when you have moved to retirement with respect to the proportion of assets the caps represent.

When considering your options, says Kingdon, if a review of your fund assets shows the total cost of closing the fund is minimal this might enable your husband to roll over his benefits earlier than expected.

However, in the absence of this, your husband may be able to start a transition to retirement income stream benefit from which he can withdraw 10 per cent of his account balance tax-free annually, Kingdon says.

But this may not provide the necessary tax relief on the benefits to warrant the exercise.

Since 2017, transition-to-retirement income streams are not regarded as retirement pensions with accompanying investment earnings entitled to tax-free treatment. Tax will be levied on investment earnings.

As far as your strategy of moving your super to an industry fund is concerned, Kingdon says this should not be rushed.

What is particularly important, he says, is being aware of the asset allocations of different investment options offered by your chosen industry fund, especially any unlisted assets in the funds.

Just like when you embarked on your SMSF journey it should have been with a clear strategy for the future. Any decision to shift to an industry fund should also be carefully planned given it will involve the complex process of winding up your SMSF.