Are you one of the thousands of Australians with a growing super balance nearing the $3 million mark? You may be on track to pay more tax than you planned from the 2025-26 financial year.
Superannuation has long been one of Australia’s most powerful retirement tools. However, the new superannuation tax changes in 2025 are set to shift the game, particularly for high-balance holders, SMSFs, and Australian expats with global income ties.
Many Australians are unsure whether these superannuation tax changes apply to them or how much they could cost.
And it’s not just about the $3 million balance. The real risk lies in what it means for your long-term wealth strategy. Let’s break it down.
Understanding Australia’s Proposed Superannuation Tax Changes for 2025
The 2025 Federal Budget introduced a series of reforms aimed at making superannuation tax concessions more equitable. The main focus? High-balance accounts.
These proposed superannuation tax changes include a new tax on earnings for individuals whose total superannuation balance exceeds $3 million, known as the Division 296 tax. It’s a key part of the Australian government’s Better Targeted Superannuation Concessions plan.
If you’re managing your super in Australia or from overseas, these changes could impact your strategy, retirement plans, and even how your assets are valued.
The New “Better Targeted Superannuation Concessions” Policy
The policy introduces a 15% additional tax on earnings associated with the portion of your super balance exceeding $3 million, starting from the 2025–26 financial year.
This is in addition to the existing 15% tax on concessional superannuation earnings, effectively creating a total tax rate of 30% for high-balance earnings above the threshold.
The government has stated that these changes are designed to rebalance tax benefits in favour of low- and middle-income earners.
Example: You had $3.8 million in super on 30 June 2025, and $4.3 million on 30 June 2026. That’s a $500,000 gain.
Of your $4.3 million, $1.3 million is above the $3 million cap, which is roughly 30.2% of your balance.
Therefore, approximately 30.2% of the $500,000 gain (i.e., $151,000) is subject to the 15% Division 296 tax, resulting in an additional tax of $22,650.
So even though you didn’t withdraw any money, you’d still receive a personal tax bill of $22,650, on top of the fund’s $75,000 tax. Your total tax bill would be $97,650.
Superannuation Guarantee (SG) Rate Increase
As part of the legislated schedule, the Superannuation Guarantee (SG) rate is currently 12%, having increased from 11.5% on 1 July 2025.
This increase means employers must contribute more to their employees’ super accounts, boosting retirement savings over time.
While this change applies broadly across all working Australians, it’s particularly important for high-income earners and business owners to ensure their payroll systems are updated to remain compliant with the rising SG obligations.
Deeming Rate Freeze Extended to 30 June 2025
The government has extended the deeming rate freeze at 2.25% until 30 June 2025. This means retirees can earn more interest on savings without it affecting their Age Pension payments or eligibility.
The freeze offers financial relief during a time of rising interest rates and helps protect retirement income.
AU Expats—Don’t Let Super Tax Catch You Off Guard
Many Australians risk higher tax bills under the new super changes, without even realising it. With the right strategy, you can protect your balance and reduce unnecessary tax.
Who Will Be Affected by the Superannuation Tax Changes in Australia?
The new superannuation tax changes in Australia are highly targeted. Most Australians won’t be affected, but those who are could face thousands in extra tax each year.
Roughly 80,000 individuals, less than 1% of account holders, are expected to be impacted in the first year. However, this number may increase as super balances grow and the $3 million cap remains in place. Let’s look closer at who’s in the firing line.
Identifying High Superannuation Balance Holders in Australia
You’ll be affected if your total super balance across all accounts exceeds $3 million as of June 30 of any given year, starting from 2025–26.
This includes:
- SMSFs and retail/industry fund balances combined
- Defined benefit interests, using valuation formulas
- All accumulation and pension-phase assets
If your balance dips below $3 million, the extra tax won’t apply that year.
Are You Impacted? Knowing the $3 Million Super Tax Target Group
This tax mainly affects:
- Wealthy retirees with large balances from decades of concessional contributions
- Property-rich SMSFs, where valuations can spike on paper
- Aussie expats with super in Australia but assets or income abroad
If you’re nearing this threshold, it’s time to review your super strategy, even if you’re not there yet.
How the New Tax on Super Over $3 Million is Calculated (Division 296 Tax)
Division 296 is a new tax mechanism introduced by the Treasury Laws Amendment Bill. It applies an additional 15% tax on earnings attributed to super balances over $3 million.
The key difference? It includes unrealised gains, meaning your fund’s asset growth is taxed, whether you access the money or not. Here’s how it works.
The Mechanics of Division 296 Tax on Superannuation Investment Earnings
Division 296 uses a formula:
Taxable Earnings = (Total Super Balance This Year – Total Super Balance Last Year) + Withdrawals – Contributions
Then:
- The portion attributable to your balance over $3 million is taxed at 15%.
- It doesn’t matter if those gains were withdrawn or not; the tax applies to all growth.
The ATO will calculate this annually and notify you of your Division 296 liability.
Worked Examples: Real-Life Scenarios for Australian Superannuation Holders
Let’s explore how this works in different life stages and fund structures.
Impact on Retirees with Account-Based Pensions
Say you’re a retiree with $4.2 million in super, most of it in a pension-phase account. If your balance increases by $300,000, approximately $107,000 of that is attributed to the portion exceeding $3 million.
You’ll face a Division 296 tax of ~$16,000, even though you didn’t withdraw any new money.
How It Affects Employees and Self-Employed Individuals
Even working Australians with growing super from long-term employer contributions could cross the threshold by their late 50s.
Someone aged 52 with $2.6 million today and strong market returns may easily reach $3.2 million in 2–3 years, triggering Division 296 for the first time.
Understanding Defined Benefit Funds Under the New Superannuation Rules
For defined benefit funds, the annual benefit value is converted using a fixed formula (typically 16x the annual pension). This ensures high-income public servants aren’t excluded.
If the total value exceeds $3 million, the same Division 296 rules apply.
Implications for Self-Managed Super Funds (SMSFs) and Asset Valuations
SMSFs with large property holdings are particularly exposed.
For example, if an investment property in the SMSF rises in value but isn’t sold, the unrealised capital growth is still taxed, even though it’s not liquid.
This adds pressure to reassess SMSF strategies for valuation timing, diversification, and asset mix.
Addressing the Controversies and Criticisms of the Super Tax Changes
While many support the principle of progressive tax reform, the 2025 superannuation reforms haven’t been without controversy.
Critics say the policies are too blunt, may have unintended consequences, and could lead to distortions in retirement planning.
Why the $3 Million Threshold is Not Indexed for Inflation
Unlike other tax thresholds, the $3 million cap won’t rise over time.
That means:
- More Australians will be caught by the tax as super balances grow.
- What affects <1% now could affect many more in 10 years.
The government argues that this ensures long-term sustainability, but many call it a stealth tax expansion.
The Debate Over Taxing Unrealised Gains in Superannuation
Taxing paper gains is rare globally.
Concerns include:
- Taxing growth that may later reverse (e.g., property downturn)
- Creating cashflow issues for funds holding illiquid assets
Many tax experts argue this sets a dangerous precedent in Australian taxation.
Current Status: Will Labour’s Superannuation Tax Changes Become Law?
Yes — the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 has passed the Senate.
Unless overturned in a future budget, these changes will be enforced from 1 July 2025.
Strategic Planning: Navigating the 2025 Superannuation Reforms
If your super balance is high or you’re projected to cross $3 million, planning now is essential.
Tax-effective structuring, withdrawal timing, and asset diversification will matter more than ever.
Tax-Smart Strategies for High Super Balances
Here are some actions you can take to reduce exposure to Division 296 while keeping your retirement on track:
Split Super With Your Spouse
By sharing contributions between you and your partner, both accounts are more likely to stay under the $3 million cap, helping minimise or even avoid the extra 15% tax when you lodge your tax return.
Track and Cap Contributions Early
Once your balance nears $3 million, consider stopping additional contributions or switching to non-super investments to avoid accidentally breaching the threshold.
Keep Volatile Assets Outside Super
Assets like property or tech stocks can spike in value on paper, triggering tax on unrealised gains under Division 296 — even if not sold. Holding them outside the super can reduce exposure.
Use Alternative Structures
Consider options such as family trusts, investment companies, or insurance and investment bonds. These can help build wealth outside the super environment while maintaining flexibility.
Manage Currency Risk in Expat Portfolios
If your super holds international assets or you live abroad, currency swings may inflate your super balance in AUD terms, pushing you over the threshold. Active FX management is key.
Update SMSF Valuations Accurately
Use market-based, well-documented methods to value SMSF assets. Inaccurate or outdated valuations could lead to higher tax assessments or ATO scrutiny.
Financial Planning Considerations for Australian Expats and Global Mobility
Expats with large super balances must factor in:
- Dual taxation risks if residing overseas
- Currency movements affecting asset values
- ATO reporting and fund compliance from abroad
To stay up to date with the latest developments, regularly check the ATO’s superannuation tax thresholds and follow budget legislation updates.
It’s a good idea to seek help from experienced professionals to apply the right super strategy for your personal situation and maximise your tax return.
AU Expats—Is Your Super Strategy Future-Proof?
Tax rules are shifting rapidly, and high balances could result in higher bills. Get expert support now to stay compliant and protect your retirement savings.
Key Takeaways
- The 2025 superannuation tax changes introduce a new 15% tax on earnings over $3 million in super balances.⬆️
- Division 296 applies this tax to unrealised gains, starting from 1 July 2025.⬆️
- Retirees, SMSFs, and expats are the most impacted groups.⬆️
- Planning strategies include asset rebalancing, splitting contributions, and early withdrawals.⬆️
- Stay informed through ATO updates and speak with a licensed adviser.⬆️
