Navigating the New Superannuation $3 Million Tax Cap
Navigating The New Super $3 Million Cap Tax.
If you have super over the $3 Million Cap what could that mean for you?
What Is the New $3 Million Super Cap Tax?
From 1 July 2025, individuals with total superannuation balances over $3 million will face an additional 15% tax on earnings, bringing the effective tax rate to 30% (up from the current 15%).
This tax applies only to the proportion of your balance above $3 million—not your entire superannuation. For example, if your total balance is $3.5 million, the extra 15% tax would apply only to earnings on the $500,000 excess.
Key Details:
- Applies from: 1 July 2025
- Tax rate: 30% on earnings above $3 million
- Affects: Individuals only, not couples or joint accounts
- Based on: Total Superannuation Balance across all accounts
- Includes: Unrealised gains (controversially)
How Will the Tax Be Calculated?
This new tax isn’t calculated on actual withdrawals or realised income but rather on movement in your total super balance from one financial year to the next.
If your total super balance exceeds $3 million at the end of the financial year, you will be taxed on a pro-rata basis. This means only the proportion of earnings attributable to the portion of your balance above the cap will be taxed at the additional rate.
For instance, if 25% of your total balance is above the cap, only 25% of your calculated earnings will attract the new 15% tax.
The most controversial aspect of this measure is that the tax applies to unrealised capital gains—that is, increases in the value of investments that haven’t actually been sold. This deviates from standard tax practices in Australia and raises concerns about cash flow and fairness.
Who Will Be Affected?
This tax is projected to affect around 80,000 Australians, or less than 0.5% of superannuation members, based on Treasury data.
Likely affected groups:
- High-income earners with large concessional/non-concessional contributions
- SMSF members with property or concentrated equity investments
- Retirees with strong market growth across diversified portfolios
What Can You Do to Prepare?
If you have—or are on track to have—a super balance nearing the $3 million mark, here are some strategies to consider:
1. Get a Full Picture of Your Total Super Balance
Make sure you’re tracking your total super balance (TBS) across all funds. Even if your individual accounts are below the cap, combined balances are what count.
2. Consider Diversifying Outside Super
If you're nearing the cap, it may be more tax-effective to direct new investments outside of super. Trust structures, investment bonds, or shares held personally could offer better flexibility and lower risk of future tax changes.
3. Review Your SMSF Assets
For SMSF holders with illiquid assets like property, the application of this tax on unrealised gains is a concern. Consider speaking with your accountant about valuation methods, asset sales timing, and liquidity management.
4. Review Your Estate Planning
Super is a powerful intergenerational wealth tool, but changes like this may reduce its long-term advantages. It’s worth reviewing your estate strategy, death benefit nominations, and whether alternate structures (like family trusts) are more suitable.
5. Get Advice
This is not a DIY area. Work with a financial adviser and tax professional to model your projected TSB growth, explore tax minimisation options, and ensure you’re not caught off guard.
Why the tax? The Government’s Justification: Fairness in the System
The government argues that the super system’s purpose is to support retirement, not wealth accumulation or estate planning. According to Treasury, the average super balance at retirement is around $150,000–$400,000, far below the $3 million threshold.
This policy aims to rein in the $50 billion+ in tax concessions currently flowing to high-balance individuals annually, freeing up future budget funds for health, education, and aged care.
Plan Ahead Now
While this tax change affects a small proportion of Australians today, more people may be affected over time as investment returns compound and contribution strategies evolve.
If you are in a high-income bracket, self-employed, or managing an SMSF, you should act now to future-proof your strategy. Whether it’s shifting investment strategies, diversifying outside super, or reassessing retirement income planning, proactive management is the best way to stay ahead of the curve.
Need Help Navigating the New Rules?
At Cashflow Financial, we help you get clarity around complex changes like these. If your superannuation balance is approaching $3 million and you want to understand how this may affect your future, we offer tailored superannuation and tax planning strategies.