$3 million super cap: what, when and how

$3 million Super Cap: What, When & How

The Government has announced that from 1 July 2025, an additional tax of 15% will apply to superannuation balances exceeding $3 million. The proposed method of administering this has raised a number of unanswered questions and complications, and introduces a brand new concept of taxing unrealised gains on assets.

What is it?

The increased tax will apply to individuals with a Total Superannuation Balance (TSB) of $3 million or more on 30 June 2025. Total Superannuation balance includes all superannuation an individual has, including both pensions and accumulation accounts, across all superannuation funds.      
The tax will be calculated and assessed to the member, and the tax can either be paid personally, or elected to be released from superannuation and paid by the fund.

The proposed system will be administered in a similar fashion to the current ‘Division 293’ tax (the additional contributions taxed to higher income earners). 

How is it calculated? 

Here is where the complication lies – the new definition of earnings. 

Essentially, the ATO will use the below calculation to determine how much tax is payable: 

Earnings = TSB (on 30 June of the current year) – TSB (on 30 June of the previous year) + withdrawals – net contributions. 

They will then proportion the earnings to only include the amount over $3 million: 

Proportion = (TSB (on 30 June of the current year) - $3 million) / TSB (on 30 June of current year) 

Let’s look a practical example.  

Richard (64) has a TSB on 30 June 2025 of $3.2 million. His investments grow in value during the year, and his TSB on 30 June 2026 is $4.2 million. Richard has made no contributions or withdrawals during the year, and hasn’t sold any of his investments. 

The tax payable by Richard is: 

Earnings: $4.2 million - $3.2 million = $1 million 

Proportion: ($4.2 million - $3 million) / $4.2 million = 28.5% 

Tax payable: $1 million x 28.5% x 15% tax = $42,750 

This means that Richard will have to pay $42,750 tax on the movement in his asset values. 

In the 2027 financial year, the ATO will provide Richard with a tax bill, and the choice to pay this personally, or arrange for it to be released and paid by his superannuation fund. 

What if asset values go down? 

If the above calculation results in a loss, then the member will be entitled to a carry forward loss to offset increases in subsequent years – but no refund of tax. 

Let’s look at Richard again.

In 2026/27, Richard’s assets drop in value back to $3.6 million.  

His earnings are therefore a loss of $600,000. 

The proportion of loss he is allowed to carry forward is 20%, so $120,000. 

In 2027/28, Richard’s assets increase back up to $4.5 million. 

His earnings calculation is then: $4.5 million - $3.6 million = $900,000 LESS the $120,000 carried forward loss = $780,000. 

The proportion of the earnings to be taxed is 33.3% = $780,000 x 33.3% x 15% = $38,961. 

As you can see, this is a complex system being proposed, and one that will see tax paid on asset value fluctuations. 

When does this start? 

The new tax will commence for the 2026 financial year, and the initial tax assessments will be sent to members after 30 June 2026. 

What do I do now? 

For right now – nothing. It is important to note that there are many significant questions and concerns that will be raised with Treasury as part of the consultation process before legislation is drafted. In addition, the new system will not apply until the 2026 financial year, allowing people to consider their own situation prior to this and restructuring if necessary.

For more information 

If you want to discuss how the $3 million super cap may affect you, please contact your local RSM office.