When should my super be under $3m to avoid the proposed new tax?

A common question from our clients about the proposed new tax for people with more than $3m in super has been : if I want to make sure it doesn’t apply to me, does my super need to be below $3m on 30 June 2025 or 2026?

While we don’t even have draft legislation for this measure yet, plenty of people are already thinking about the new tax proposed from 1 July 2025.

Remember, this is intended to apply an extra 15% tax on a “proportion” of the “earnings” on the member’s super balance.

If everything goes the Government’s way, it’s due to come in from 1 July 2025 and will apply for the 2025/26 financial year. Some people will choose to take large amounts out of super in order to make sure they’re under the magic threshold of $3m. (As an aside, my modelling suggests that’s not necessarily a good idea but nonetheless some people will choose to do it.)

The obvious next question is whether the deadline for doing so is 30 June 2025 or 30 June 2026.

In fact it’s 30 June 2026.

But there’s plenty of confusion about that and it’s probably a function of the way the calculations are to work (based on the latest information we have).

When it comes to this measure, the focus has definitely been the calculation of “earnings”.

Imagine a case where a member’s balance is $3.5m at 30 June 2025 and has grown to $4m by 30 June 2026 (for simplicity, assume no money has come out and no new contributions have been made). “Earnings” for the new tax is therefore $0.5m ($4m less $3.5m).

Not all of this will be taxed. Instead, tax will only apply to a “proportion” of the “earnings”, and the proportion is worked out as follows:

In other words, the tax would be 15% x 25% x $0.5m = $18,750.

Now imagine the same member had actually withdrawn $1m just before the end of the year. So instead of having $4m at 30 June 2026, their balance was only $3m.

This time, the earnings calculation would be different but the answer would be the same:

($3m (balance at 30 June 2026) + $1m (add back amounts withdrawn from super))

less

$3.5m (balance at 30 June 2025)

= $0.5m

In other words, the earnings formula is too smart to be fooled by taking large amounts out at the end of the year.

But now the proportion would be completely different. The calculation above shows that it was based on the balance at the end of the year. So if the balance at the end of the year is only $3m, the proportion will be nil%.

In other words, taking a large amount out of super at the end of the year will have no impact on earnings. But it will impact the proportion of those earnings that is subject to the tax – potentially reducing it to zero.

That’s why the deadline for withdrawing large amounts from super is 30 June 2026 rather than 30 June 2025.

For more on the proposed new tax, we have a wealth of resources available to help you navigate the Division 296 tax available here.