Proposed two-tier tax on super balances over $3m delayed by a year

The Government has moved away from an earlier plan to calculate the tax based on changes in a member's total super balance over a year. 

Instead, the tax will be calculated on realised earnings – that is, the fund’s actual taxable income, adjusted for taxable contributions and any exempt income from the fund's pension assets. This approach aligns with existing income tax concepts and avoids taxing unrealised gains.

Each year, the ATO will determine whether a member is liable for Division 296 tax based on their total super balance across all funds at the end of the financial year. The ATO will then request the member’s share of realised earnings from their super fund and calculate the additional tax. 

It is proposed that members will be able to pay the tax personally or for it to be released from their super.

The Government is still considering measures to ensure fair treatment for defined benefit members and to extend the exemption for some judges to improve consistency across jurisdictions. 

Further consultation will occur before legislation is introduced, with the first assessments under the proposed new rules expected in the 2027–28 financial year.

Currently about 100 people with balances above $50 million are taxed at the current concessional rate of 15%, according to the Association of Superannuation Funds of Australia (ASFA)^#, and are expected to pay more tax under the proposed changes.

Australians with total super balances of between $3 million and $10 million could be taxed at 30% on realised earnings attributable to their balance over $3 million; and about 8,000 Australians with total super balances above $10 million could pay 40% on realised earnings attributable to their balance over $10 million. 

However, effective tax rates will depend on the assets held and the extent to which other discounts, such as capital gains tax discounts and franking credits, apply. 

For those with self-managed super funds (SMSFs) that directly invest in property, the new tax could be significant. 

Property investments often generate income through rent and capital gains when sold, so timing of asset sales may affect tax outcomes. 

Large SMSFs may need to plan to have enough cash on hand to meet additional tax liabilities without forcing asset sales.

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