Key points
The Federal Government have recently announced plans to redesign the proposed tax on earnings for people with more than $3 million in super.
In a nutshell, the main changes are: a move to creating two tiers (earnings on balances greater than $3m and $10m); indexation of each of the tiers; an additional tax rate of 15% and 10% on the respective two tiers; and taxation on ‘realised earnings’ only.
This is unquestionably a move in the right direction and a sign that the Federal Government has listened to the community about elements of the initially proposed tax design that were not workable.
There is not yet formal or draft legislation. As always, the devil will be in the details, particularly surrounding the calculation of ‘realised earnings’.
Given the provisions will not apply now until 1 July 2026, and be based on super balances as at 30 June 2027, there is additional time to understand how the new proposal may work in practice.
The better approach for most people will likely be to wait and see what eventuates before acting.
The initial proposal
The previously announced proposal sought to implement a new 15% tax on “earnings” for superannuation account balances above $3 million. In particular, the mechanism for calculating earnings under the previous proposal was based on the movement in a member’s total superannuation balance across a year.
The most contentious aspect of the proposal was its application to unrealised increases in asset values and the lack of indexation of the $3 million threshold.
The new proposal
The Federal Government has announced they are redesigning this proposed tax to address some of the concerns and contentious elements of the initial proposal.
In particular, the new proposal will include:
- calculate earnings under a ‘realised earnings’ approach (i.e. removing taxation of unrealised gains);
- retaining the $3 million threshold for individuals with superannuation account balances above $3 million (tier 1);
- a second threshold for individuals with superannuation account balances above $10 million (tier 2);
- stepped taxation rates that apply an additional 15% to tier 1 amounts and an additional 10% to tier 2 amounts; and
- indexation of the $3 million and $10 million thresholds in increments of $150,000 and $500,000 respectively.
Further, the start date has been pushed back to 1 July 2026 with the first assessments expected to be issued in the 2027-28 financial year.
What is known about the new proposal
The Federal Government have announced the following information in relation to the new proposal:
- The mechanism for calculating earnings under the new proposal will be based on a super fund’s ‘realised earnings’. Each person with a total superannuation balance above $3 million will be attributed an amount of ‘realised earnings’ from their super fund(s).
- The Federal Government have advised the ‘realised earnings’ will be based on the fund’s taxable income (with some adjustments) and is expected to closely align to existing tax concepts.
- The new proposal introduces a tiered tax rate approach. In particular, an additional 15% tax rate is to be applied to ‘realised earnings’ on the proportion of the total super balance above $3 million. An additional 10% is then applied to the proportion of the total super balance $10 million.
- The measure has been described as a tax rate of 30% (inclusive of the existing 15% super fund tax rate) on earnings for super balances between $3 million and $10 million, and a tax rate of 40% (inclusive of the ordinary 15% super fund tax rate) on earnings for super balances above $10 million. However, this is not strictly accurate given the additional rates are apportioned based on the total balance above the relevant threshold. For example, where the total super balance is $4 million, the additional rate is 3.75% (15% x 1/4), resulting in an effective tax rate of 18.75%. For balances of $10 million this becomes an additional rate of 10.5% (15% x 7/10) or 25.5% total. For balances of $20 million the additional rate is 17.75% (15% x 17/20 + 10% x 10/20) or 32.75% in total.
What is currently unknown about the new proposal
There is no draft legislation at this stage and there are many details that are still unknown.
It is not clear at this stage how ‘realised earnings’ will be calculated. The Federal Government have advised people will be attributed an appropriate share of ‘realised earnings’ on a fair and reasonable basis using existing reporting mechanisms where available.
While the concept of ‘realised earnings’ is said to be based on taxable income, we have very little information about how the calculation will incorporate elements such as discount capital gains, exempt fund earnings, and franking credits.
Likewise, we would need to understand how realised capital gains are handled under the new proposal. This will be of particular interest for funds that already hold assets with unrealised gains. It has been reported that only capital gains accruing from the start date of the new measure will be subject to the additional tax. This suggests that super funds may need to reset the cost bases of CGT assets to their market values on 1 July 2026 for the purposes of the additional tax, while maintaining historical cost bases for income tax purposes. The announced consultation process is likely to consider the details of this feature such as the interaction with capital losses and the method by which particular assets held by a fund are allocated to specific members for the purposes of calculating earnings subject to the new tax.
Examples
The Federal Government provided the following two examples to help illustrate the impact of the new proposal:
Megan – both APRA-regulated fund and SMSF interests
- Megan is 58 and she is both a member of an APRA-regulated fund and a member of an SMSF and has a total super balance of $4.5 million, of which $2.3 million is in an APRA fund and the remaining $2.2 million is in an SMSF.
- In the 2026-27 financial year, Megan had $100,000 in realised earnings from her APRA fund and $200,000 in realised earnings from her SMSF (a total of $300,000).
- The proportion of her $4.5 million balance above the $3 million threshold is 33.33 per cent. The proportion above $10 million is nil.
- Megan’s [additional] tax liability under this new proposal would be $15,000 (0.15 x 0.3333 x $300,000).
Emma – SMSF member with over $10 million
- Emma is 55 and a member of an SMSF and has a total super balance of $12.9 million at the end of the 2026-27 income year. That year she was attributed $840,000 of the fund’s realised earnings for the purposes of this tax.
- The proportion of her balance above the $3 million threshold is 76.74 per cent and the proportion of her balance above the $10 million threshold is 22.48 per cent.
- Emma’s [additional] tax liability under this new proposal would be $115,581 (0.15 x 0.7674 x $840,000 + 0.10 x 0.2248 x $840,000).
Next steps
Further detail on the proposal is expected to be released through draft legislation or legislation introduced into Parliament. While taxpayers may be able to take action now in respect to the announcement, we believe that taxpayers should prudently consider the final tax design before any action or restructuring is undertaken. The delayed commencement date will provide those impacted with additional time to plan for the introduction of this new proposal.
Individuals with large super balances should continue to monitor the progress of this new proposal and what their strategy may be.
If you would like to discuss your circumstances further, please reach out to your Pitcher Partners representative.
