$3m Cap – draft legislation released

Author: Jason Roccasalvo, Partner, TAG Financial Services

The government has now released draft legislation for the introduction of the additional earnings tax for superannuation balances over $3 million. Interested parties can respond to draft bills by making a submission during the consultation period, which closes on 18 October.

The draft legislation is essentially unchanged from Labor’s original plans and is slated to take effect from 1 July 2025.

Here’s a re-cap on what the additional tax currently includes:

The Cap

The cap amount at $3m is purported to only impact 80,000 Australians. One of the most contentious aspects of the cap is there is no indexation of this amount. We all acknowledge that $3m in 2012 is a lot different to $3m in 2023, so hopefully a more balanced decision making by parliament rectifies this issue.

The Tax Rate

15% on the earnings applicable to a balance above $3m. Simplistically, this is labelled as an effective 30% tax on super, however this additional tax only applies on the proportion above $3m.

Even with this additional tax, superannuation remains the most tax effective vehicle for investments (more so for retirees in pension mode). Individuals still retain their own tax-free thresholds which allow (with offsets) around $23,000 a year in tax free taxable income – beyond these, superannuation provides the lowest tax rate for your investments.

What is getting taxed?

Earnings attributed to members are essentially what is being taxed. The other contentious item is that this supposed “simple” calculation means that unrealised gains will, for the first time, become a taxable item within the Australian Tax System.

Tax return data has many simple avenues to provide the ATO with data that eliminates unrealised gains, and again this item has received a lot of concern from the industry. Funds and members with illiquid assets will be challenged further with cash flow if this aspect remains in place, once legislated.

What’s next?

Let’s wait and see how consultation and negotiation within the Senate affects the final product, at which point we will turn attention towards its true impact and strategies to consider.

Any questions?

If you have any questions, please contact us on 03 9886 0800 or via email.

Specialist Advice
If you would like to discuss a project, please contact us. Our advice is quoted upfront for your approval before commencement.

Webinars On Demand
We have lots of informative webinars by our financial experts. Watch them any time on demand.



Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.