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SMSF Updates

30% Tax on Earnings for Super Balances Exceeding $3 Million from 2025

28 Feb, 2023

The governments has confirmed that the government will implement a 30% tax on earnings for super balances exceeding $3 million from 2025. After weeks of speculation regarding changes to concessions, the revised tax rate will take effect on 1 July 2025.

Currently, earnings from superannuation are taxed at a concessional rate of up to 15% during the accumulation phase. This will remain unchanged for all superannuation accounts with balances below $3 million. However, for balances exceeding $3 million, the concessional tax rate applied to future earnings will be 30% from 2025-26 onwards.

It’s important to note that this adjustment doesn’t limit the size of superannuation account balances in the accumulation phase, and it only applies to future earnings. It’s not a retrospective measure. The government considers this modest adjustment consistent with its proposed objective of superannuation, which is to deliver an income in retirement to substitute or supplement the age pension.

The government has stated that the tax change will only affect a very small number of high-income earners, estimated to be around 1% of the population. This move is expected to generate approximately $350 million in revenue over the next four years.

The decision to tax superannuation earnings on high balances follows a growing concern among policymakers that the current system provides excessive tax concessions to the wealthy, while low and middle-income earners struggle to save enough for retirement. The government hopes that the new tax rate will help to improve the sustainability and fairness of the superannuation system.

However, some experts have warned that the change may have unintended consequences, such as encouraging people to shift their savings into other assets with more favourable tax treatment. It remains to be seen how the new tax rate will affect the behavior of superannuation savers and whether it will achieve the government’s desired outcomes.

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