The following article was originally published in March. We have re-published it as the Albanese government released draft legislation to increase taxes on Australians with more than $3 million in super. For additional coverage on the changes to super please see this article. 

The Government has struck a reasonable compromise in its desire to rein in the cost of tax concessions on large superannuation balances.

Treasurer Jim Chalmers has announced that from 1 July 2025, taxation on earnings from superannuation balances in excess of $3 million will double to 30%. The existing 15% rate on accumulation funds will continue for all super balances below $3 million.

Announcing the changes on Tuesday, Chalmers said the 'modest' adjustment "means 99.5% of Australians with superannuation accounts will continue to receive the same generous tax breaks, and the 0.5% of people with balances above $3 million will receive less generous tax breaks." 

However, there is a surprise in the way the extra tax will be calculated, and we outline the method below.

Not only will the Australian Taxation Office issue tax liability notices to individuals for the first time in the 2026-27 financial year, but it will include unrealised capital gains with the $3 million tested for the first time on 30 June 2026. 

Managing the politics


Although the Government had previously indicated it was only having a ‘conversation’ with the Australian people, it has moved quickly with an announcement in the face of growing criticism.

Crucially, the attack on the Government was labelled a breach of an election promise and it raised the prospect of undermining the ‘truth and integrity’ high ground Prime Minister Anthony Albanese campaigned on successfully at the last election.

Albanese was especially vulnerable after his undertaking in the May 2022 election campaign, when he said:

“We have no intention of making any super changes. One of the things we’re doing in the election campaign is we’re making all of our policies clear.”

By postponing the effective date until after the next Federal election, due by May 2025, Labor can claim it took the policy to the people, thereby not breaking an election commitment.

It’s worth noting there are many assumptions in the $48 billion estimated cost of superannuation concessions, such as the guess that earnings outside super would be taxed at the top marginal rate, whereas it is more likely that many people would find alternative ways to reduce their tax. 

The new policy is expected to raise about $2 billion a year. Prior to finalising the policy, Treasurer Chalmers faced two major choices:

  1. Introduce another superannuation tax bracket at $3 million (the new policy), or
  2. Place a cap of $3 million on the amount that can be held within the superannuation structure, with the rest removed.


Earlier in the debate, Chalmers suggested the second option was his preferred choice, as he probably wanted to avoid the spectre of increasing taxes, but it would have been inferior.

Imposing a $3 million cap would have required people to remove money from superannuation, creating a range of complexities, such as forced sales of illiquid assets, realising capital gains in a tax event and resetting cost bases as assets were sold or transferred.

How will the new limit work?


A day after announcing the change, Treasury released details on how the extra tax would be calculated.

Contrary to expectations that the 30% rate would be a third tier in the tax calculation for large super balances - on top of the 0% for the pension amount and 15% for the accumulation amount until the $3 million limit is reached - a different technique has been selected based on the individual.

There remains no limit on the size of account balances in the accumulation phase.

Each person will have a Total Superannuation Balance (TSB) and those with over $3 million at the end of a financial year will be subject to a tax of 15% on earnings. Earnings will be calculated using the difference between the TSB at the start and end of the financial year, adjusted for withdrawals and contributions.

Using the same treatment as adopted for Division 293 Tax (the extra tax paid on super contributions where income exceeds $250,000), individuals can choose whether to pay the tax from their super or from other resources.

The new tax does not form part of a personal income tax return, and the new tax limit is per person, not per fund, such as an SMSF.

Treasury summarises the calculation as:

Super tax calculation method

It's easier to understand with Treasury's example. The surprise is that earnings include unrealised gains and losses. TSBs will be tested for the first time on 30 June 2026 with tax liability notices issued in 2026-27.

Treasury's example of a balance exceeding $3 million


Warren is 52 with $4 million in superannuation at 30 June 2025. He makes no
contributions or withdrawals. By 30 June 2026 his balance has grown to
$4.5 million.

Warren’s calculated earnings are $4.5 million - $4 million = $500,000.

His proportion of earnings corresponding to funds above $3 million is ($4.5 million - $3 million) ÷ $4.5 million = 33%

His tax liability for 2025-26 is 15% × $500,000 × 33% = $24,750

Note that this is extra tax, an additional amount above the tax that Warren would currently pay.

Treasury's example of the earnings calculation


Carlos is 69 and retired. His SMSF has a superannuation balance of $9 million on 30 June 2025, which grows to $10 million on 30 June 2026. He draws down
$150,000 during the year and makes no additional contributions to the fund.

Carlos’s calculated earnings are: $10 million - $9 million + $150,000 = $1.15 million

His proportion of earnings corresponding to funds above $3 million is ($10 million - $3 million) ÷ $10 million = 70%

Therefore, his tax liability for 2025-26 is 15% × $1.15 million × 70% = $120,750

Again, this is an additional tax, not the full tax.

Anyone with multiple super funds, such as an SMSF, retail fund or industry fund, can elect where the extra tax is paid from, or from personal accounts.

Treasury example of a carry-forward loss


Dave is 70 and has two APRA-regulated funds and one SMSF. At 30 June 2025, his TSB across all funds was $7 million. During 2025-26, he withdraws $400,000 from his SMSF and makes no contributions. At 30 June 2026, his TSB across all funds is $6 million.

This means Dave’s calculated earnings are $6 million - $7 million + $400,000 = minus $600,000.

His proportion of earnings corresponding to funds above $3 million is ($6 million - $3 million) ÷ $3 million = 50%.

The earnings loss attributable to the excess balance is $300,000. Dave can carry forward the $300,000 to offset future excess balance earnings.

At 30 June 2027, Dave’s funds make earnings on his excess superannuation
balance of $650,000. He carries forward the earnings losses attributable to his 
excess balance at 30 June 2026 of $300,000 and is only liable to pay the tax on
$350,000 of earnings.

This means his tax liability for 2026-27 is 15% × $350,000 = $52,000.

Although it introduces another level of complexity, this method was chosen because funds do not currently calculate taxable earnings at an individual member level, and a method was needed to identify taxable earnings for members with balances over $3 million. 

There was no statement about whether people with over $3 million in super can stop new Superannuation Guarantee contributions from their employer and take a higher salary instead. Someone earning less than $45,000 incurs a marginal tax rate of only 19% and might prefer to invest outside super and avoid the 30% tax rate.

Both sides can take some comfort from the new policy


The politics has a long way to play out before the new tax rate hits the bank accounts of large SMSFs, and it’s likely the Coalition at the 2025 election will argue ‘typical Labor’ with tax increases to ‘pay for their spending’.

Chalmers and Albanese will need to persuade voters that it is the right policy to reduce the cost.

In this example, $15,000 is not a massive impact on someone with $5 million in super, especially since it does not come into effect until after three more tax returns. It’s a better solution than forcing assets out of super or imposing personal marginal tax rates.

However, the lack of indexing in the $3 million is inappropriate and will be a major point of contention.

Albanese gave a hint of what is to come when he said:

“If they (the Coalition partners) want to vote against this change and try and prevent this change, then they can explain to people why they’re not prepared to back energy bill relief for pensioners ... but they are prepared to go to war for the one half of 1% of people with more than $3 million of superannuation in their accounts.”

Perhaps the bigger question is what else is to come. Labor has yet to make a firm undertaking that there will be no further changes to superannuation.

For example, the Government intends to legislate an objective of superannuation as follows:

super objective

Lump sum withdrawals seem incompatible with the objective.

Under current arrangements, someone can withdraw all their superannuation on attaining one of the many ‘Conditions of Release’, such as reaching the age of 65, even if they have not retired.

Taking all the money out seems to breach the objective “ … to preserve savings to deliver income” in retirement. So the question is … what’s next?

Future developments

Now watch for articles on alternatives to holding large amounts in super. The case for investing more in a family home, transferring super to a lower-balance spouse or starting a family trust just received a boost, as did the financial advice industry.

The politics has a long way to play out before the new tax rate hits the bank accounts of large super holders, and Chalmers and Albanese will need to persuade voters that it is the right policy to reduce the cost of super.

Graham Hand is an Editorial Director at Morningstar

Editor's note: This article was updated on 2 March 2023 after the government released details on how the extra tax will be calculated.