The proposed tax on superannuation earnings is not yet law. What we know so far is that the Government intends to impose a 30% tax on future superannuation fund earnings where a member’s total superannuation balance (TSB) is above $3m. That is, if your superannuation and pension balances are above $3m from 1 July 2025:

• An additional 15% tax will apply on earnings above $3m (not indexed); and The 15% tax applies to ‘unrealised gains’.
• This will mean that a tax liability will arise if the value of fund assets increases even if they are retained.

Currently, all fund income is taxed at either 15%, or 10% for capital assets that have been held by the fund for more than 12 months. Unrealised gains, that is gains that are made because of changes in value, are not currently taxed – tax only applies when the gain is realised on sale or disposal of the asset.

If enacted, the legislation would mean that those impacted, could be paying tax on gains in value but without the cash from a sale to support the tax payment.

An additional tax of 15% on earnings will apply to individuals with a total superannuation balance (TSB) over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance for the new tax uses the current definition and includes amounts in retirement phase pensions.

The proposed calculation aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.

Individuals will have the choice of paying the tax personally or from their superannuation fund. Those with multiple accounts can nominate which fund will pay the tax.

Much like the Division 293 tax imposed on high income earners, the Australian Taxation Office (ATO) will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

From the perspective of the fund, reporting would form part of the current year end tax return process.

There are a series of steps to how the earnings and tax are applied: Calculating the earnings in your superannuation fund, the portion above $3m, then the tax liability. It looks like this:

Earnings

Earnings = (TSB _{Current Financial Year} + Withdrawals - Net Contributions) – TSB _{Previous Financial Year}

Proportion of earnings corresponding to funds above $3 million:

Proportion of Earnings = TSB _{Current Financial Year} -$3million/TSB Withdrawals _{Current Financial Year}

Tax Liability

Tax Liability = 15 per cent x Earnings x Proportion of Earnings 

Example: Balance Exceeding $3 million

Sarah’s total superannuation balance (TSB) at 30 June 2025 is $5.5 million. By 30 June 2026, Sarah’s TSB has increased to $6 million. She has made a withdrawal of $150,000 during the year.

In this example, Sarah’s calculated earnings are $650,000 for the year. Then, we look at the proportion of Sarah’s TSB above $3 million, or 50% in her case. Finally, a flat tax rate of 15% is applied to the proportion of earnings attributable to Sarah’s balance over $3 million. Sarah’s tax liability would be $48,750.