Introduction
Australia’s federal government recently overhauled its plans to tax superannuation balances held by wealthy individuals. These changes reshape how balances over certain thresholds will be taxed, affect eligibility for concessions, and alter obligations for those with large retirement savings. Understanding these developments matters if you're in or expecting to be in this high-balance group.
Key Changes at a Glance
| Threshold | Previous proposal | New structure (from 1 July 2026) |
|---|---|---|
| A$3 million ≤ balance < A$10 million | 30% tax rate, including on unrealised gains | 30% tax rate, unrealised gains scrapped, thresholds indexed for inflation (reuters.com) |
| Balance ≥ A$10 million | Same 30% tax rate as above for all amounts over A$3 million | New 40% tax rate on earnings above A$10 million (reuters.com) |
| Low-income offset and threshold | A$500 offset; lower income thresholds | Offset increased to A$810; income threshold raised to A$45,000 by 2027 (reuters.com) |
Implications for High-Balance Members
- Realised vs unrealised gains: The scrapping of unrealised gains taxation protects those with wealth tied in long-term investments — your tax liability will only apply when you cash in or distribute gains. (reuters.com)
- Indexation: The A$3 million threshold will now be indexed for inflation, reducing the risk of gradual bracket creep affecting more people over time. (reuters.com)
- Sharp rates at the top: For those with super balances over A$10 million, the 40% rate on earnings above that amount is a substantial jump. Planning investment returns and asset allocation becomes even more crucial. (reuters.com)
Practical Example
Consider two individuals—both having the same base real return on investments of 5% per annum, but differing super balances:
- Alice: A$4 million in super. Earnings on the A$1 million above A$3 million will be taxed at 30%. Total earnings taxed will be A$4 million × 5% = A$200,000; of which A$100,000 (on the first A$2 million) taxed at normal concessional rates, and the remaining A$100,000 taxed at 30%. After 1 July 2026.
- Bob: A$12 million super. Earnings above A$3 million (which is A$9 million) taxed as follows: A$7 million taxed at 30%, and A$2 million taxed at 40%, because his total balance exceeds A$10 million. Plus offset improvements if his income is low. This structure makes high-return, high-balance management much more critical.
Actionable Steps
1. Review current asset mix and expected returns. High-balance individuals should prioritize assets offering favourable realised returns and manage distributions accordingly.
2. Consider timing of withdrawals or rollovers. Since unrealised gains are no longer taxed ahead of time, when you sell or distribute becomes a strategic decision.
3. Monitor income levels and low-income offsets. If you or your spouse have variable income near the A$45,000 threshold, optimizing other income sources or deductions might ensure maximum benefit.
4. Seek professional super planning advice. Especially for balances approaching or above these thresholds, talking with a financial planner or tax adviser about long-term strategy is essential to reduce exposure to high rates.
Conclusion
These reforms reflect a more targeted and sustainable approach to superannuation taxation: by taxing realised income rather than floating gains and adjusting thresholds with inflation, the system aims for fairness without unexpected surprises. However, those with high super balances must be strategic about investments, withdrawals, and income planning to navigate the higher rates that now apply.