Tax Planning

How Australia’s New Superannuation Tax Rules Impacting High-Balance Accounts

From 1 July 2025, new legislation targets superannuation balances over $3 million—this article explains what’s changing, who’s affected, and practical strategies to safeguard your retirement savings.

By NomadicTax Research Team • 5-8 min read • November 20, 2025

## What’s Changing Australia has introduced **‘Better Targeted Superannuation Concessions’**, effective 1 July 2025, which reduce tax concessions for superannuation earnings above $3 million. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/better-targeted-superannuation-concessions?utm_source=openai)) These changes are part of broader efforts to make superannuation tax privileges fairer and more sustainable. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/non-arm-s-length-income-changes-for-superannuation-funds?utm_source=openai)) Additionally, legislation allows for more flexible rules around exiting certain **legacy retirement products**—and changes to how reserve allocations are counted toward contribution caps. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) ## Who’s Affected These rules mainly impact: - Individuals with **super balances exceeding $3 million** at 1 July 2025. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/better-targeted-superannuation-concessions?utm_source=openai)) - Those holding older super income streams that qualify as **legacy retirement products**, for example, lifetime pensions or annuities started before 20 September 2007. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) - Members of super funds who have reserves that were historically excluded or treated favourably but now face more stringent contribution cap assessments. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) ## Practical Implications and Risks - Earnings on balances **above $3 million** will face a higher tax rate of **30%** instead of the previous lower concessional rate. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/better-targeted-superannuation-concessions?utm_source=openai)) - Option to **commute legacy retirement products** means retirees might exit older products with less favorable tax treatment. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) - Contributions from reserves now more carefully assessed; past exclusions may simply not apply, hurting those who relied on them to stay within contribution caps. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) ## Strategic Steps to Manage the Change 1. **Estimate your total super balance** as of 1 July 2025 — see where you stand against the $3 million threshold. 2. **Review legacy product holdings**: If you have old pensions or annuities, compare tax and income implications of commutation now versus later. Sometimes commuting early may avoid future higher assessments or rate changes. 3. **Plan contributions carefully**: Avoid exceeding contribution caps, especially when reserve reallocations are involved. If contribution room is tight, consider deferring or redirecting contributions to compliant funds or family members. 4. **Seek tailored advice**: Tax and financial planning experts can model your individual situation—including projected earnings, inflation/market returns, and age—to recommend optimal mix of products. 5. **Optimize fund choice**: Some super funds offer investment options or product types that manage exposure to non-arm’s-length income, which can also affect tax treatment. Review your fund’s options. 6. **Stay informed on guidance**: The ATO continues to publish web guidance for legacy product commutations and contributions from reserves. Reviewing up-to-date ATO counsel helps avoid surprises. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/super-funds-newsroom/guidance-for-legacy-products-and-allocations-from-reserves?utm_source=openai)) ## Example Case Study **Julia** has a superannuation balance of **AU$3.6 million** as of 1 July 2025. Under the new law, the earnings on the **AU$600,000 exceeding the threshold** will be taxed at 30%, up from the previous concessional rates. She also has a **legacy annuity** started in 2004. Julia must decide whether to commute the legacy product now (triggering potentially some taxes and changes) or retain it and deal with its changed treatment and reduced concessional benefit. By modeling this with her adviser, she can identify the annual cost and possible benefit of changing her portfolio or exit timing. ## Key Takeaways - The superannuation concession cuts from 1 July 2025 affect **high-balance accounts**—planning now is essential. - Legacy products might be exited—but tax consequences, liquidity, and long-term income must be carefully evaluated. - Effective super planning during this transition period can preserve more value—and minimize unexpected tax in the future. **Your Action Plan**: Estimate your super balance, review legacy products, set contribution strategy, and consult a financial adviser before 1 July 2025 to take full advantage of the existing rules where helpful.