How will the $3 Million Superannuation rule work?

Matt Richardson

The Labor Government is looking to impose a new, extra tax of 15% on earnings for taxpayers with a Total Superannuation Balance (TSB) of greater than $3.0m.

In the Treasury Paper released by the Government, “earnings” is defined as the change in your TSB from the previous financial year, after taking into account contributions and withdrawals.  Your TSB is measured on 30 June every year.

It is also important to note the following points:

  • The $3.0m figure is per taxpayer and includes the total value of all superannuation accounts, both pension and accumulation.
  • The $3.0m figure will not be indexed.
  • The tax will be levied on the member personally, not to their Fund.  However, a member will be able to withdraw money from superannuation to pay the tax.
  • This tax will first apply to “earnings” in the 2026 year, based on TSBs on 30 June 2026 – in other words, there are still 3 years to plan how you might deal with this.
  • The extra tax is only applied to the proportion of your account balance over $3.0m.

ISSUES or CONCERNS for taxpayers

Based on the definition provided by Treasury, “earnings” will include unrealised gains.  In other words, if your TSB is over $3.0m, you will be subject to the extra tax on increases in the value of assets you have not sold.

The obvious issue with this is from a cash flow perspective, if you are effectively having to pay tax on an unrealised capital gain, you will have to find the cash from somewhere to pay the tax!

The majority of our Self-Managed Superannuation Funds (SMSFs), hold property such as farming land, commercial & residential property.  Increases in these values, regardless of whether they are sold, will now meet the definition of earnings and be subject to tax.

What Now?

It is important to remember, this proposal is not yet law, however, any major changes to the policy appear unlikely. 

For now, there is no need for any knee-jerk reactions, such as selling assets or rushing to withdraw amounts from your superannuation.  However, assuming this proposal becomes law and your TSB is likely to be over $3.0m on 30 June 2026, you will need to be aware of how this will impact you.