Tax hike on super balances above $3 million: Is it time to rethink our retirement savings vehicles?

Now that the contentious Division 296 tax changes on superannuation balances above $3 million are law, individual fund members who will be affected by the changes can begin to plan with more certainty.

A quick look at the changes

Commencing 1 July 2026, the tax rate levied on super fund earnings for members with balances above $3 million will increase.

Some of the key points to note include:

• Your super fund will continue to pay tax at the existing rate of 15% on applicable fund earnings
• An additional 15% tax will apply on earnings generated on member balances between $3 million and $10 million, bringing the total tax on those earnings to 30%
• An additional 25% tax will apply on earnings generated on member balances above $10 million, bringing the total tax on those earnings to 40%
• The additional tax is levied on the fund member and not the fund itself
• The member can either pay the tax personally or request the additional tax amount to be released from their super fund balance and paid to the Australian Taxation Office (ATO)
• The member’s total super balance (TSB) will be used to calculate tax payable
• The $3 million and $10 million thresholds will be indexed for inflation
• These changes are not designed to apply a limit on super fund account balances. Rather, they are designed to apply a higher rate of tax on fund earnings where members have large account balances.

Although these changes apply to most types of super funds, they will have a much greater effect on members of self-managed super funds, due to their higher average member balances and the investments held within these funds.