Tax increase for super balances over $3 million

Taxes are going up for superannuation balances above $3 million from July 1, 2025.

The extra 15% tax on investment earnings impacts 80,000 Australians or 0.5% of savers with large, multimillion-dollar superannuation balances.

It takes the concessional tax rate for investment earnings for balances above $3 million from 15% to 30%.

Data from Treasury shows that 39% of superannuation tax concession benefits go to the top 10% of income earners. Around 6000 Australians have more than $10 million in superannuation, 23,000 have between $5 million to $10 million while 16,500 have $4 million to $5 million and 33,500 have $3 million to $4 million.

Greg Combet, chair of Industry Super Australia, says some wealthy Australians have used superannuation for tax minimisation and estate planning.

Labor said it had no intentions to make any changes to superannuation before last year's federal election and, to head off the debate about broken election promises, the changes come into effect after the next election which is scheduled to be held in the first half of 2025.

The move raises $2 billion in its first full year of revenue after the next election. Currently, superannuation tax concessions amount to $48.2 billion this financial year and are projected to exceed the cost of the Age Pension by 2050.

The higher tax on investment earnings does not restrict the size of superannuation account balances in the accumulation phase.

It is not retrospective but applies to amounts from 2025-26.

Prime Minister Anthony Albanese stressed that more than 99.5% of Australians will continue to receive the same generous tax breaks that help them save more for retirement through superannuation.

Superannuation is one of the few assets with tax advantages. It is concessionally taxed as a trade-off for locking up contributions until retirement.

Compulsory superannuation contributions are taxed at 15% and, while in the fund, investment earnings are taxed at 15% in the pre-retirement phase. Franking credits typically can reduce this tax to around 7%.

Once a person retires and reaches their preservation age and they draw down a pension from their superannuation, they don't pay tax on income from their investments for amounts under $1.7 million, known as the transfer balance cap. Any amounts over $1.7 million are kept in the accumulation fund where investment earnings are taxed at 15%.

This 15% tax is lower than the marginal tax rates of 19%, 32.5%, 37% and 45%. People with huge amounts in their superannuation, protect their money from normal tax.

There are levers that limit how much people contribute to superannuation such as the superannuation contributions cap of $27,500.

The Government also announced it is legislating an objective for superannuation which, surprisingly, doesn't yet exist.

Having an objective that superannuation is to be preserved for retirement, could protect governments from using superannuation as a cash cow to be raided in times of emergency and to be used as a political tool to be seen to solving housing affordability.

During the pandemic, the Coalition allowed people to withdraw up to $20,000 to help with living costs. Around three million Australians applied for the early release of super and nearly one million cleaned out their superannuation account - particularly women, single parents and the unemployed, according to the Association of Superannuation Funds of Australia.

It has had a detrimental effect on the retirement savings of millions of Australians, said ASFA's deputy CEO, Glen McCrea, giving the example of a 30-year-old taking out $20,000 in 2020 having $43,000 less when they retired at the age of 67.

As well Australians are allowed to use their superannuation for housing, under the first home super saver scheme to help first home buyers save a deposit using their superannuation account.

Get stories like this in our newsletters.