Understanding the Upcoming Super Tax Concession Change
Starting 1 July 2025, individuals whose total superannuation balance (TSB) exceeds $3 million at the end of a financial year will face reduced tax concessions on earnings above that threshold. (ato.gov.au) This measure—the Better Targeted Superannuation Concessions reform—affects a small slice of Australians (roughly 0.5%) but significantly impacts those nearing or above the $3 million mark. (ato.gov.au)
Actionable Strategies Before the Threshold Hit
-
Monitor your TSB annually and project forward: include both accumulation and defined benefit components. If you expect your balance to cross $3 million, plan distribution or asset allocation changes beforehand.
-
Redirect growth into tax-efficient assets: income-producing investments inside super will be taxed at a higher combined rate once the threshold is exceeded. Consider tax-free or lower-tax assets outside super or using pension phase assets if eligible.
-
Explore phased pension strategies: Drawing pension incomes can shift funds out of accumulation; if done tactically, this may reduce your accumulation balance below $3 million while maintaining income. Consider timing of pension commencements relative to financial year-end.
Real Example: Jack’s Super Strategy
Jack is 62 with a TSB of $2.9 million at 30 June 2025. He expects strong market gains pushing him past $3 million by June 2026. He considers topping up a defined benefit pension stream before 30 June 2025 and starting an account-based pension to start converting assets. This reduces his TSB while meeting income needs. Jack also slows additional contributions until balance falls below the threshold and shifts income-yielding assets into trusts outside super for tax planning.
Risks & Compliance Considerations
-
Valuation issues for defined benefit interests: These are treated differently. Defined benefit interests will also receive “commensurate treatment” under the reforms. (ato.gov.au)
-
Accurate reporting: your fund must report earnings correctly. Misreporting can attract penalties.
-
Timing is critical: All decisions to reduce super balance exposure should align with financial year ends (30 June) to ensure correct calculation.
Bottom Line
If your super balance is close to $3 million, start planning now. Use pension transitions, adjust allocations, and consider drawing income streams strategically. While only a small group is affected, the difference in tax on earnings above the threshold is substantial and could impact retirement outcomes significantly.