Large superannuation balances will have tax concession removed

The federal government has announced its intention to change the tax concessional status for very large superannuation accounts. The tax concessional status will change for individuals with over $3 million in superannuation.

Effectively, the amounts held in superannuation above $3 million will have that portion's investment earnings taxed at 30%, instead of the current 15%. This new tax rate will apply from 1 July 2025.

As a result of this announcement, there will be no adjustments in the future to have a maximum limit in superannuation.

I haven't started a pension yet. How does this affect me?

From 1 July 2025, if you have over $3 million in accumulation phase and no pension account, your fund will need to obtain an actuarial certificate each year. This actuarial certificate will calculate the effective rate of tax that your fund will pay. Broadly, the actuarial calculation will be made up as follows:

• The first $3 million of your balance will continue to have its earnings taxed at 15%.

• Every part of your balance over $3 million will have its earnings taxed at 30%.

Generally, at this balance level, you will only have deductible contributions going into the fund.

Pensions and the transfer balance cap

Currently, amounts held in superannuation above your transfer balance cap are kept in accumulation phase and taxed at 15%.

This will continue to apply after 1 July 2025, except if your total account is over $3 million. If your account is over $3 million, then that portion will be taxed at 30% rather than 15%.

For example, if you have $4 million in your account at 30 June 2026 and you have exhausted your transfer balance cap, your superannuation tax position may be as follows:

• $1.4 million pension phase balance ($1.6 million transfer balance cap exhausted) - 0% tax on earnings

• $2.6 million in accumulation phase:

  • $1.6 million of accumulation phase - 15% tax on earnings

  • $1 million of accumulation phase - 30% tax on earnings.

What can I do?

As this announcement states that any new law will not take effect until 1 July 2025, you have over 2 years to determine the appropriate action to take. Each action will be different and must be based on your personal and financial situation, but available actions may include the following:

• Do nothing and leave the large balance in superannuation with 30% tax on earnings.

• Pay a lump sum (at varying tax rates) to yourself for private investment (individually or in a company).

• Realise assets prior to commencement of new law, taking advantage of lower tax rates for a portion of the gain.

At this stage, there is no draft legislation attached to this announcement. We will keep you informed of any progress of legislation when it comes to hand.