What is the proposed Australian $3 Million Superannuation Tax?
Speaking with expats in both Asia and here in Australia, the subject of the proposed Australian Super Tax changes is often raised. A brief overview of the rules below:
The proposed new rules are known as the Division 296 tax changes (named for the section of tax legislation it relates to).
If it's passed by Australia’s parliament in its current form, the Bill will see investment earnings - including unrealised gains - on super balances above $3 million, face an additional 15% tax, taking the total tax rate to 30%.
This is a key change to super, which has long enjoyed low tax rates to encourage saving for retirement.
Who will be affected by the $3 million super tax?
It will only apply to people who have at least $3 million in total super savings - be it in one account or spread across multiple balances.
For expats, the proposed legislation applies to Australian superannuation funds and does not extend to include superannuation balances in foreign superannuation funds
The Australian Grattan Institute estimates that fewer than 0.5% of all Australians - about 80,000 individuals - will be affected, 85% of whom are aged over 60.
How the $3 million super tax will work?
The proposed new 15% tax is not levied on super balances above $3 million.
Rather, it applies to the fund's investment earnings that apply to super savings in excess of $3 million.
An example;
Example: Jill, not currently working, aged 55
On 30 June 2025, Jill has a total super balance of $3.0 million. By 30 June 2026, this increases to $3.1 million. Jill made no contributions or withdrawals during the year. The increase reflects investment returns.
Under the proposed Bill, Jill's super earnings for the year are $100,000 ($3.1 million less $3.0 million). Remember, only the portion of her fund's earnings over $3 million will be taxed the extra 15%.
This portion is calculated by subtracting $3 million from $3.1 million ($100,000) and dividing this figure by $3.1 million to find a percentage. (The calculation is $100,000 ÷ $3.1 million x 100.)
In this example, 3.23% of Jill's super fund earnings, equal to $3,230, will be subject to the higher tax rate. This will see her pay $485 in additional tax ($3,230 x 15%).
(This example is sourced from ASFA highlighting how the $3 million super tax will work)
The 'why' behind the $3 million super tax
Tax breaks in super are an incentive for us to save for our own retirement. At same time ,those same tax breaks have seen some wealthy Australians save more money in super than they will ever need in retirement.
The Grattan Institute says super has become a taxpayer-subsidised inheritance scheme - one that benefits older, extremely wealthy Australians, while leaving a higher tax burden on younger taxpayers.
Key issues with the $3 million super tax
There are a couple of concerns with the proposed new super tax:
Taxing unrealised gains
Unrealised gains will be taxed, while losses can be carried forward to offset future tax liabilities, taxing 'paper' gains is major change to Australia’s existing tax rules.
Lack of indexation
The $3 million threshold is not being indexed, unless the threshold is indexed for inflation, more people will be captured over time.
The Australian Financial Services Council calculated that without indexation more than 500,000 Australians currently in the workforce could be impacted by the tax by the time they reach retirement.
Where to from here?
Originally, the new super tax was to start from 1 July 2025 however the bill is now expected to be reintroduced to Australia’s parliament in July,2025.
There has been no word on whether that start date will be 1st July, 2025 or shifted.
Even with the proposed new tax, super remains a very tax-friendly way for the overwhelming majority of Australians to save for their later years (providing an income stream once we leave the workforce).
Having said that, the proposed “Division 296 tax” is a reminder of the need to grow investments in and outside Australian super.
For expats spreading your money across multiple asset classes, in and out of Australian super as well as foreign super, is a great way to diversify and reduce risk.
Regards,
Dale Hoy
m) +61 419 364 994
Here are 2 ways I assist Australian expats plan their repatriation.
1) Download my checklist on the 7 key areas for Australian expatriates to start exploring with their advisor.
2) Book a private conversation with me at your convenience.
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