The Albanese government has said that its plan to double the tax rate on earnings from superannuation balances above $3 million will make the system “fairer and more sustainable”.
Under draft legislation released for consultation on Tuesday, the tax rate on earnings from total super balances (TSB) above $3 million will increase to 30 per cent from financial year 2025–26, while earnings on super balances below $3 million will continue to be taxed at 15 per cent.
In a joint statement on Tuesday, Treasurer Jim Chalmers and Financial Services Minister Stephen Jones asserted that the super tax changes, which are set to come into effect following the next election, are “modest” and only affect “a handful of people”.
“The 0.5 per cent of people with superannuation balances above $3 million will still receive tax breaks, just slightly less generous. The remaining 99.5 per cent of Australians with superannuation accounts are not affected at all,” they said.
“The change will not alter the amounts of money people can put into super, and it applies to future earnings – it’s not retrospective.”
Furthermore, Mr Chalmers and Mr Jones suggested that the amendments are consistent with the government’s proposed objective of superannuation, which is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
However, the super tax changes have been subject to criticism since they were first announced in February, particularly given that it will mean taxing unrealised capital gains. Concerns have also been raised over the $3 million threshold, which will not be indexed.
“We’re absolutely dead against it and we will repeal it. We’re not going to stand by and watch Australians attacked,” Opposition Leader Peter Dutton said in March.
“The figure of $3 million is not indexed so in 10- or 15-years’ time, there will be tens of thousands, if not hundreds of thousands of Australians who will be affected by this.”
According to the government, around 80,000 people, or approximately 0.5 per cent of Australians with a super account in the 2025–26 income year, are expected to be impacted.
The Greens said on Tuesday that they will use their balance of power in the Senate to support the changes but only if the government commits to super on paid parental leave (PPL).
“Labor has said repeatedly that they want super paid on paid parental leave ‘when budget circumstances permit’. The expected revenue from its proposed changes to super is more than enough to cover the cost,” said Greens senator Larissa Waters.
Also reacting to the draft legislation, SMSF Association chief executive officer Peter Burgess criticised the government for moving ahead with its plan to tax unrealised capital gains, which he warned will result in “many unintended consequences”.
“While the association doesn’t support super members with excessively large balances receiving generous super tax concessions, taxing unrealised gains is not the answer,” he said on Tuesday.
“It will give rise to many unintended consequences, defies longstanding principles of our tax system, and will result in outcomes inconsistent with the stated objective of this new tax.”
Mr Burgess suggested that the government should remove unrealised capital gains from the calculation of earnings, which has been included in the draft legislation, and instead use actual allocated taxable earnings as the measure.
“It would avoid the many unintended consequences and bizarre outcomes that will arise by combining two entirely different concepts of taxable income for the same entity,” he said.
‘Large attack’ on small number
Chartered Accountants ANZ (CA ANZ) has been among the most vocal opponents of the changes and previously labelled them a “large attack” on a relatively small number of individuals.
“Investing in superannuation in this country is like trying to shoot a moving target flying in circles over shifting goal posts,” CA ANZ superannuation and financial services leader Tony Negline said in February.
“The lead time is good as the changes will come into force after the next federal election, but it is still a major impact proposed on a small number of people who haven’t done anything wrong – they played by the rules and now the rules have changed.”
CPA Australia has also accused the government of acting prematurely by introducing the changes at the same time as it consults on the objective super.
“This is a piecemeal change that should not be made in isolation. Constant and piecemeal changes undermine the community’s confidence in the superannuation system and government policy,” the accounting body said.
“There is a real risk average Australian families and small business owners will be adversely impacted, particularly due to the lack of indexation of the $3 million threshold and the taxation of unrealised capital gains.”
The Financial Services Council (FSC) has estimated that some 500,000 taxpayers will breach the $3 million cap in their lifetimes if it remains unindexed.
FSC chief executive Blake Briggs said, “500,000 impacted Australians is over six times the current government estimates, which only takes into account balances that are currently over $3 million”.
“Leaving the cap stuck at $3 million will mean that in today’s dollars, a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap.”
Tax receipts from the $3 million super tax legislation are expected to reach $2.3 billion during the 2027–28 financial year, according to figures published in the May budget.
The government has only given stakeholders two weeks to lodge their submission, with the consultation open until 18 October.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.