Superannuation – Is It Just a Tax Grab?

Superannuation – Is It Just a Tax Grab?

Yep. It is. Its bloody Stupid too. Yeah, I know I shouldn’t say so but I will because that is what it is.

But I have a real problem with Superannuation. It is a great tax vehicle. Any plan that allows 0% tax rates must never been scoffed at.

But boy is it annoying. Frustrating too. And let’s not forget inflexible. It is regulated more than the operation of a nuclear powerplant and for reasons no one can explain to me Governments love to tinker with it.

When it comes to Superannuation decisions are made for the long term. But Governments and their policies are short term. And this makes what we want and what Governments want like chalk and cheese. They are never going to work together.

And the government has come up with a real whopper this time. They say it only affect 0.5% of super balances but quietly admits that by 2052 it will catch 10% of the population.

I think it will be more. Much more.

The Government has proposed changes to the taxation for individuals with balances more than $3 million.

This is a proposal at present, and no laws or regulations have changed but it is likely these proposals may be very different by the time they become law.

What are the proposed changes?

The proposal suggests that from 1 July 2025, an individual with a total superannuation balance exceeding $3 million at the end of the prior financial year will be subject to an additional tax of 15 per cent on the proportion of earnings on any balance that exceeds the $3 million threshold.

The first time that superannuation balances will be tested will be on 30 June 2026 and will be compared to an individual’s total superannuation balance on 30 June 2025.

The first notices of tax liability are expected to be issued in the 2026-27 financial year.

The $3 million threshold is not indexed. This means by 2052 anyone with a balance of $3m in 2052 will be paying this tax. No one knows but it could be that by 2052 the average Super balance is $3m which means the average person will be paying this tax.

There’s more.

There are some fundamental changes that are a first for Australian taxes.

‘Earnings’ are defined as the difference in an individual’s total superannuation balance at the start and end of the relevant financial year, considering withdrawals and contributions, regardless of whether any capital gains are realised through asset disposal.

This means you will be taxed on capital gains even if the asset is not sold. Eg Your superfund holds CBA shares. At 1 July 2025 they are worth $100,000. At 30 June 2026 they are worth $120,000 but you have not sold them. Per the rules you will pay tax on this even though you have not sold any shares.

Yep. My thought too. Bloody stupid.

How will the tax be paid?

Well, you will have the choice of either paying it from your own bank account or from your Super account.

Let’s take an example:

Warren is 52 with $4 million in superannuation at 30 June 2025.

He makes no contributions or withdrawals. By 30 June 2026, his balance has grown to $4.5 million.

Warren’s earnings are $500,000($4.5 million – $4 million).

His proportion of earnings corresponding to funds above $3 million is 33 per cent ($4.5m – $3m) ÷ $4.5m.

Therefore, Warren’s additional tax liability for 2025-26 is $24,750 (15% × $500,000 × 33%).

As you can see the tax amounts can be quite significant and tax planning about when funds are withdrawn are going to be critical.

But for the moment this are just proposed plans. Hopefully they will change to something that allows us to make good long term plans. But I doubt it. As I said bloody stupid.