Over the past year, the Federal Government’s proposal to introduce a new tax on superannuation balances exceeding $3 million has sparked significant discussion, and more recently, a renewed wave of media attention. In light of this, we want to provide a clear update on where things stand, what may lie ahead, and what it could mean for those potentially impacted.

A Quick Recap: What Is the $3M Super Tax?

The proposed measure, announced in February 2023, aims to apply an additional 15% tax on the earnings attributed to the portion of an individual’s total superannuation balance that exceeds $3 million. This would effectively bring the tax rate on earnings above this threshold to 30%, up from the current 15%.

The tax is intended to apply from 1 July 2025, with the first assessments expected to be issued in the 2026–27 financial year. Importantly, this tax is not limited to income that is realised (i.e. from sold assets). It also includes unrealised gains. This has been one of the major sticking points among critics and industry professionals alike.

Where Is the Proposal Now?

As at May 2025, the legislation is still before Parliament and has not yet been passed into law. The relevant Bill, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, was introduced in late 2023 and is currently under review by the Senate Economics Legislation Committee. The committee’s report, originally due in early 2024, has been delayed. Industry observers note that final passage through both houses remains uncertain.

While the Government continues to express strong support for the policy, there are still questions about whether it has sufficient political backing in the Senate, where crossbench votes could prove decisive.

Why the Renewed Media Interest?

In recent weeks, several media outlets and financial commentators have revisited the issue, largely due to the policy’s looming start date in July 2025. PwC and others have noted the technical complexity of the proposed calculation method and the challenges associated with taxing unrealised gains, particularly in the context of volatile investment markets.

In addition, the ATO released preliminary administrative guidance earlier this month, prompting renewed scrutiny around how the system would operate in practice. These developments have refocused attention on the policy and its potential impact on high-balance superannuation members.

Key Criticisms of the Proposal

The $3 million super tax has drawn a range of concerns from financial professionals, legal experts, and impacted individuals. Key issues include:

Taxing Unrealised Gains
This is arguably the most contentious element. Taxing notional increases in asset values without a corresponding sale raises the risk that individuals may face tax liabilities despite having no liquidity to cover them. This is particularly problematic for SMSFs holding illiquid assets such as property or private investments.

Retrospective Application
Although the tax is set to apply from 1 July 2025, critics argue that it penalises individuals who have built large super balances in accordance with long-standing rules. Some have characterised this as retrospective taxation, particularly where significant growth occurred prior to the proposed rules being announced.

Fairness and Indexation
The $3 million threshold is not proposed to be indexed. Over time, inflation could result in more Australians being captured by the measure, even if they are not what most would consider “wealthy retirees.” This could lead to broader-than-intended impacts over the long term.

Complexity and Compliance Burden
Determining the proportion of earnings subject to the additional tax, particularly for individuals with multiple funds, adds complexity to an already heavily regulated environment. For advisers, accountants, and trustees, this means a greater compliance burden and higher potential for error.

How Would It Work in Practice?

In its current form, the tax would operate as follows:

• The ATO will calculate the total super balance of each individual as at 30 June each year.
• If the balance exceeds $3 million, the individual will be liable to pay 15% tax on a portion of the change in their Total Super Balance.
• A calculation determines the proportion of earnings related to the balance above $3 million, and the 15% tax is applied to that amount.

Example:
Suppose your Total Super Balance as at 30 June 2026 is $4 million, up from $3.8 million on 30 June 2025. That is a $200,000 increase. Since $1 million of your balance is above the $3 million threshold, 25% of the earnings ($50,000) are deemed to relate to the excess. A 15% tax is applied to that amount, resulting in a $7,500 tax bill, even if none of your assets were sold.

The ATO will assess and levy the tax directly. Individuals may choose to pay the liability from personal funds or release it from their super account.

Looking Ahead

If your superannuation balance is approaching or exceeding $3 million, it is important to stay informed and consider early planning discussions. While the legislation has not yet passed, the Government’s commitment to its implementation remains clear.

There is potential for amendment as the bill proceeds through Parliament, particularly in response to continued feedback from industry bodies and stakeholders. Whether any changes are made to address concerns about unrealised gains or indexation remains to be seen.

Final Thoughts

We will continue to monitor the progress of this legislation closely and evaluate its implications for your overall strategy. If you have any questions about how this may affect your personal situation, please feel free to reach out to our team.