As we roll into the Budget on 14 May, we know of three major changes to superannuation next financial year. One is legislated, the other two are to be confirmed but are final enough to be on the ATO website. Of course, the Budget may introduce further changes as this has typically been where Treasurers have been minded in the past to tinker with the super system.

We’re also getting closer to the new super tax on account balances over $3 million, which is due to start on 1 July 2025. Last Friday was the closing date for public submissions in response to the Government’s draft legislation to implement the tax. A Senate Committee is also expected to review the legislation.

In this article, I will look at the three changes for this year, and what we know about the new super tax on balances over $3m (and if impacted, what you may want to do).

Changes for 2024/2025

Firstly, the superannuation guarantee levy rises from 11% to 11.5%. This is the amount employers are required to contribute to the super of their employees and is calculated as a percentage of the employee’s ordinary times earnings.

Originally introduced at a rate of 3% in 1992, it has been going up most years and will finally reach its target rate of 12% in the 25/26 financial year.

Due to inflation, the super contribution caps are set to increase. The concessional contributions cap, which counts contributions from your employer (the compulsory 11.5%) plus salary sacrifice contributions plus personal contributions you claim a tax deduction for, is set to increase from $27,500 to $30,000 pa.

Non concessional contributions, which are contributions from your own (after tax) monies, are capped at 4.0 times the concessional contributions cap. So, the non-concessional cap is expected to rise from $110,000 pa to $120,000 pa. To be eligible to make a non-concessional contribution, you must be under 75 years of age and your total superannuation balance (at the start of the year) must be under $1,900,000.

With the ‘bring forward’ rule, which potentially allows “3 years’ worth” of non-concessional contributions in one hit, from 1 July 24, someone under the age of 75 could effectively get $360,000 into super in one go.  A couple could get $720,000 into super.

To access the ‘bring forward rule’, your total superannuation balance will need to be under $1,660,000 on 30/6/24 (this comes down from the current $1,680,000). If your total super balance is between $1.66m and $1.78m, the total amount you can contribute is capped at $240,000. If it is between $1.78m and $1.90m, the total amount you can contribute is capped at $120,000. If it is over $1.9m, then you can’t make any non-concessional contributions.

There are no changes to the transfer balance cap of $1,900,000 (which governs how much you can transfer into the pension phase of super), or the total superannuation balance limit of $1,900,000 (which governs eligibility to make a non-concessional contribution). There are also no changes to the pension withdrawal factors, age based factors which set minimum withdrawal requirements from account based pensions.

The new super tax on balances over $3m

This tax is set to start from the beginning of the 25/26 financial year. There are three important things to realize with this tax:

• It is based on member balances, not super fund balances. The threshold to pay is a total superannuation balance of $3,000,000 at the end of the financial year. This means that a two person fund (say) with a total balance of $5,000,000 split between the two members (balances each of $2,500,000) won’t be impacted;
• It will effectively only apply to the proportion of your account balance over $3,000,000;
• It is measured on the proportion of investment earnings corresponding to the balance over $3,000,000, realised, and unrealised. It is a separate tax, which will be collected by the ATO following the issue of an assessment to the individual taxpayer.

The tax rate is 15%. Your total superannuation balance includes all the monies you have in pension accounts, accumulation accounts and across all super funds.

Calculation of the tax is relatively straight forward:

1. Earnings = (Total Super Balance (TSB) at end of year less TSB at start of year plus withdrawals less contributions)
2. Proportion of Earnings above $3m = (TSB at end of year – $3,000,000) / (TSB at end of year)
3. Tax = 15% x Earnings x Proportion of Earnings

Taking an example: Fred has a total superannuation balance of $4,000,000 at 30/6/26. At the start of the year (1/7/25), his total superannuation balance was $3,500,000. During the year, he contributed $100,000 as a non-concessional contribution.

Fred’s earnings are: ($4,000,000 – $3,500,000) – $100,000 = $400,000

Proportion of earnings above $3m = ($4,000,000 – $3,000,000)/ $4,000,000 = 25%

Tax = 15% x $400,000 x 25% = $15,000.

In the example above, Fred will pay an additional $15,000 in tax. This will be known as a Division 296 tax, with Fred given 84 days to pay following the issue of an assessment notice. He will be able to pay it personally (from his own monies) or direct his super fund(s) to pay it.

The major issue with the tax is that applies to both realized and unrealized investment earnings. Whereas current super taxes only apply to the actual income received (dividends, interest, realised capital gains), this news tax applies to all investment income, including unrealized capital gains. Relief will be provided in that earnings loss in a financial year will be able to be carried forward to reduce the tax liability in a subsequent year.

Taxing unrealized capital gains open up a whole lot of issues, particularly for those with illiquid or lumpy assets. It is also a first for the taxation system and will lead to an argument that double taxation could result (once when unrealized, and then again when realized on the actual capital gain). My sense is that the debate has a little way to play out and the legislation is not done and dusted.

What should you do?

Because the legislation hasn’t been enacted, I think it is too early to consider taking your money out of super. I think there is a chance of changes to the draft legislation (particularly as they relate to the treatment of unrealized gains).

When the legislation is passed, you will need to consider:

• How much you exceed the $3 million threshold.
• Opportunities, if any, to invest in a more tax efficient method (e.g. availability of tax free threshold).
• Lumpiness/liquidity of your super investment assets; and
• Does it make sense to have less volatile (more defensive) assets in super and higher growth assets outside super, and what are the costs of implementing this strategy, including realising any capital gains?

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.