How the $3m super tax may affect you (and what to do next)

As the federal government moves to introduce a new 15 per cent tax on superannuation earnings above $3 million (known as Division 296 tax), concerns and debates have emerged about the broader implications for investment strategies, retirement planning, and even the property market.

It is intended that once passed by Parliament, the new tax – which doubles the tax rate from 15 per cent to 30 per cent for balances that exceed $3 million – will apply from July 1, 2025.

The tax change is expected to directly affect less than 0.5 per cent of investors or around 80,000 people.i

Treasurer Jim Chalmers describes the increase as “a modest change” that will make “concessional treatment for people with very large superannuation balances still concessional but a little bit less so”.ii

He says it will help fund other priorities such as Medicare, cost-of-living relief and tax cuts.

The Grattan Institute says tax breaks on super contributions cost the federal budget nearly $50 billion in lost revenue each year.iii

The Institute says that, while super is intended to help fund retirement, it has become a “taxpayer-subsided inheritance scheme”. By 2060, Treasury expects one-third of super withdrawals to be as bequests – up from one-fifth today.

How will the rate be calculated?

The formula for the additional tax payment due calculates the difference between the member’s total superannuation balance for the current and previous financial years and adjusts for net contributions (which excludes contributions tax paid by the fund on behalf of the member) and withdrawals.

An earnings loss in a financial year, can be carried forward to reduce the tax liability in future years.

The calculation of earnings includes all unrealised gains and losses.

Implications for investors

The Grattan Institute says taxing capital gains as they increase removes incentives to “lock in” investments. “But it can create cash flow problems for some self-managed super fund (SMSF) members who hold assets such as business premises or a farm in their fund,” the Institute says.iv

Many commentators speculate there will be a major change to asset allocation in super, particularly in SMSFs, as a result of the move to tax unrealised gains.

Meanwhile, one property analyst predicts a structural shift in property investment with commercial real estate becoming more attractive because of its stronger income yields relative to capital growth.v

The new tax could also reduce the appeal of super as an inheritance tool with investors likely to explore alternative wealth transfer methods.

Navigating the changes

With the tax changes looming, we’re helping clients to ensure their portfolios will continue to meet their expectations.

For those looking to minimise their exposure to the tax, there are a number of strategies that may be useful.

These include:

  1. Diversifying investments outside of superannuation by, for example, making direct investments in equities, bonds or private businesses.
  2. Considering alternative retirement savings vehicles such as family trusts.
  3. Actively planning to optimise tax efficiency by, for example, structured withdrawals to keep balances below the $3 million threshold, making use of tax exemptions and considering asset reallocation.

The new tax marks a significant shift in Australia’s retirement savings landscape. While the government argues that the measure is modest and targeted, its long-term implications—particularly the taxation of unrealised gains—could reshape investment strategies for high-net-worth investors.

For those nearing retirement with a high super balance, careful financial planning will be essential and all investors who could potentially be affected, should be reassessing their portfolios and weighing up whether alternate wealth management strategies may be an option.

Please get in touch if you would like help to navigate the changes.

i Better targeted superannuation concessions – factsheet (PDF)

ii Interview with Michelle Grattan, Politics podcast, The Conversation | Treasury Ministers

iii, iv Tax reform will make super fairer and the budget stronger – Grattan Institute

v $3 million superannuation tax change sparks property warning as ‘panic’ selling begins

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Get prepared to make tax-time easier

There are always lots of tax-related tasks to complete every EOFY, but as we move into the upcoming financial year, it is also worth getting to grips with new tax changes the Government’s election promises will usher in on 1 July, which we’ve outlined below.

New 2025-2026 tax changes

During the election campaign, the Labor government announced a number of tax changes.

These include the introduction of a standard $1,000 deduction for work-related expenses for taxpayers with labour income, a 20 per cent reduction in HECS-HELPS debts, and an extension of the $20,000 instant asset write-off until 30 June 2026.

Legislation has already been passed to cut the tax rate for individuals and is effective from 1 July 2026. The rate for income between $18,201 and $45,000 will be reduced from 16 per cent to 15 per cent, with a further reduction to 14 per cent in the following financial year.i

The government has also made it clear it intends to proceed with its draft legislation (Division 296) reducing the tax concessions for super accounts with a balance exceeding $3 million. This legislation will double the tax rate on earnings related to the portion of the balance over $3 million from 15 per cent to 30 per cent.

Now, let’s look at a few ways you can get prepared in the lead up to 30 June.

Start your tax preparations now

The ATO has announced its tax time hitlist, so it’s also important to check your current tax arrangements are not going to leave you vulnerable to an audit or significant penalties. The main focus for the ATO this year is work-related expense claims, investment properties and holiday home claims, and sharing economy income and cryptocurrency.i

With the ATO taking a much tougher stance on both tax reporting and payments, make sure you lodge and pay on time, or you could face penalties and interest charges. From 1 July 2025, interest paid to the ATO will no longer be tax-deductible.

Tips for businesses

Review and update all of your financial records and identify expenses that could be deductible.

You may want to make some deductible purchases prior to EOFY to help reduce your taxable income for the financial year. The small business instant asset write-off limit for 2024-25 is $20,000.ii

Also check your debtors, inventory and fixed assets, and ensure you write-off any debts that are not recoverable. Review any capital gains and losses and consider offsetting the gains with capital losses.

Check all required super contributions for employees have been made, plus any additional contributions for business owners. Ensure these contributions are received by the funds specified cut-off date to qualify for any tax deduction.iii

To-do list for personal tax

Getting your personal tax information prepared is also important, particularly given the ATO’s focus on personal deduction claims.

If you have regular deductible expenses (such as interest on investment loans and annual payments), consider prepaying them before 30 June so you can claim a deduction this financial year.

If you are likely to have personal capital gains tax obligations from the sale of assets, consider whether you should try to offset them against capital losses.

Time for some super contributions

Consider making extra personal super contributions before the financial year ends if you can.

Before making any contributions, check the total amount of both your concessional (before-tax) and non-concessional (after-tax) contributions across all your super accounts to ensure you do not exceed the annual cap limits.iv

Other super contributions to consider include personal tax-deductible contributions, contributions on behalf of your spouse and eligible contributions that could earn you a co-contribution from the government.v

If you would like to discuss EOFY preparations for either your personal tax or business, please call our office today.

i ATO unveils ‘wild’ tax deduction attempts and priorities for 2025 | Australian Taxation Office

ii Instant asset write-off for eligible businesses | Australian Taxation Office

iii Missed and late super guarantee payments | Australian Taxation Office

iv, v Caps, limits and tax on super contributions | Australian Taxation Office

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Tax update June 2025

ATO individual and business priorities

The Australian Tax Office will be cracking down on work-related expenses in personal tax returns this year after recently revealing some of the claims that have been submitted in the past.

The ATO is also reminding businesses of this year’s limit for the popular instant asset write-off and its ongoing focus on GST fraud.

Here’s a roundup of the latest tax news.

‘Wild’ deduction claims

The tax office caused some raised eyebrows with its revelations about ‘wild’ work-related expense claims made by some taxpayers, including a mechanic claiming an air fryer, TV, gaming console and microwave.i

Other claims deemed to be personal rather than work-related included a truck driver claiming swimwear so he could go for a swim when stopped for a break, and a fashion industry manager claiming over $10,000 in luxury-branded clothing that was purchased to wear to work functions.

This time the ATO says it intends to focus on common taxpayer errors, such as work-related expenses, working from home deductions, and income from multiple sources (including side hustles like ride sourcing services or selling services via an app).

Instant asset write-off limit

The ATO is reminding taxpayers who purchased business assets during the financial year that the instant asset write-off limit in 2024-25 is $20,000.ii

The instant write-off (which allows you to immediately deduct the business part of the cost of eligible assets) is available to businesses with an aggregate annual turnover of less than $10 million who use the simplified depreciation rules.iii

The full cost of eligible depreciating assets (both new and second-hand) costing less than $20,000 on a per asset basis, may qualify for the deduction.

Focus on business GST fraud continues

A Melbourne man has been sentenced to 2 years and 11 months’ imprisonment after obtaining over $390,000 in fraudulent GST refunds and attempting to obtain a further $330,000.

The sentence reflects the continued ATO focus on stamping out GST fraud, with the acting deputy commissioner Kath Anderson noting there were “no ifs, ands or buts here – if you don’t run a business, you don’t need an ABN and you cannot claim GST refunds”.

The ATO-led Serious Financial Crime Taskforce remains on the lookout for potentially fraudulent GST activities, with information sharing identifying businesses using complex financial arrangements (such as false invoicing, misaligned GST accounting methods and claims for fake purchases) to obtain larger GST refunds.

New small business benchmarks released

Small business owners keen to take the ‘pulse’ of their business can now use updated financial benchmarks covering 100 different industries produced by the ATO.

Updated annually, the benchmarks are designed to help business owners compare their performance against other businesses in the same industry.

Owners can use the information to identify if their performance is within the normal range for their industry, which mean it is less likely to attract ATO attention.iv

Paperless SMSF reporting

The ATO has emailed trustees of SMSFs still completing and lodging paper activity statements encouraging them to move to paperless reporting for improved security and convenience.

The regulator says benefits of paperless reporting include an additional two weeks on the fund’s lodgment deadline, reduced errors, faster refunds and easier recordkeeping.

In line with the push for greater digital SMSF reporting, the ATO recently noted non-lodgment of SMSF annual returns remains a concern and this can result in trustee penalties and removal of a fund’s compliance status.v

Estimates of illegal early access in SMSFs is also worrying the regulator, with prohibited loans from funds increasing.

Help with compromised TFNs

With identity theft continuing to increase, the ATO has updated its information for taxpayers who find their tax file number (TFN) has been compromised.

TFNs can be comprised through a number of different channels like email or phishing scams, or through data breaches at legitimate organisations as well as ID theft by criminals.

Anyone who believes their TFN has been compromised or used illegally should contact the ATO immediately on 1800 467 033.

i ATO unveils ‘wild’ tax deduction attempts and priorities for 2025 | Australian Taxation Office

ii Instant asset write-off for eligible businesses | Australian Taxation Office

iii Simpler depreciation rules for small business | Australian Taxation Office

iv ATO releases new small business benchmarks for 100 industries | Australian Taxation Office

v Highlights from the 2025 SMSFA conference | Australian Taxation Office

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