The start of a new financial year means changes to superannuation rates and caps. Here is a run-down on the three major changes.  I also look at the proposed tax on super balances over $3,000,000. If legislated, this will commence from the start of the FY25 financial year.

Here is a run-down on the three major changes for 2024/2025.

1. 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 2025/2026 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 a year.

Non-concessional contributions, which are contributions from your own (after tax) monies, are capped at 4 times the concessional contributions cap. So, the non-concessional cap rises from $110,000 pa to $120,000 a year. 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, a person 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’ in full, your total superannuation balance had to be under $1,660,000 on 30/6/24. If your total super balance was between $1.66 million and $1.78 million, the total amount you can contribute is capped at $240,000. If it was between $1.78 million and $1.90 million, the total amount you can contribute is capped at $120,000. If it was over $1.9 million, 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, receive a government co-contribution or a spouse contribution from your partner).

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 $3 million

This tax is set to start from the beginning of the 2025/2026 financial year. There are three  important things to realise with this tax (as described in the draft legislation):

1. 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.
2. It will effectively only apply to the proportion of your account balance over $3 million;
3. 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 realised and unrealised investment earnings. Whereas current super taxes only apply to the actual income received (dividends, interest, realized capital gains), this news tax applies to all investment income, including unrealised capital gains. Relief will be provided in that an earnings loss in a financial year will be able to be carried forward to reduce the tax liability in a subsequent year.

Taxing unrealised 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 unrealised, and then again when realised on the actual capital gain).

The legislation is not “done and dusted” yet. Various alternatives have been proposed, including the concept of ‘deemed earnings’ being applied (similar to the assessment for eligibility to the aged pension). There is also contention over whether the $3 million threshold should be indexed for inflation.

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’s a reasonable chance of changes to the legislation (particularly as they relate to the treatment of unrealised gains).

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

1. How much you exceed the $3,000,000 threshold.
2. Opportunities, if any, to invest in a more tax efficient method (e.g. availability of tax-free threshold).
3. Lumpiness/liquidity of your super investment assets.
4. 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 realizing 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.