Introducing a law that shifts over $3 million from the superannuation of 80,000 Australians doesn’t seem like a major concern for the recently re-elected Labour Party, despite being framed as a significant test for the Albanese government. Some have dubbed it an “Invasion of the national retirement fund,” suggesting it could lead to more wealth taxes, like increased capital gains and inheritance taxes.
The coalition is grappling with its identity after a tough election and is trying to use the super tax proposal as a rallying point. This tax is set to take effect on July 1 this year, expected to generate $2.3 billion by 2027-28 and an estimated $400 billion over the next decade.
Treasurer Jim Chalmers is pushing back against criticisms of the bill, expressing his commitment to seeing it through. For young people, especially those just starting to save, it might be tempting to overlook this whole situation. But honestly, even younger folks could be impacted by these new regulations.
So, let’s break down the Financial Law Amendments (Better-targeted Retirement Pension Concessions) Bill 2023.
What has changed?
Retirement pension funds are taxed based on revenue from assets that generate individual retirement benefits. During the accumulation phase, this revenue is taxed at a flat rate of 15%, while income during retirement is tax-free. The new proposal adds another 15% tax on revenue from super assets exceeding $3 million, and savers will be taxed annually on this.
Hmm… could you give me an example?
Of course! Imagine Humphrey has a super balance of $6 million as of June 30, 2025. By the end of the next year, he’s up to $7 million. Let’s say he “earned” $1 million between 2025 and 2026. Now, to keep it simple, we’ll overlook the complexities of deposits and withdrawals for now.
We need to see how much of that revenue comes from his super assets above the $3 million mark. So, with total assets at $7 million in mid-2026, 57% of the revenue becomes taxable. If we take 57% of the $1 million increase, that’s $570,000, leading to an additional tax payment of $85,500. If his balance sticks at $6 million throughout the fiscal year, he won’t owe anything extra. Conversely, if it drops to $5 million, he’ll be able to offset that loss against future gains.
This example comes from the self-managed super fund provider SMSF Alliance, and they’re not holding back on their views about this policy.
Why do you dislike it?
Honestly, who enjoys paying more taxes? Plus, there’s a lot of frustration among older Australians who’ve worked hard under the existing retirement rules, only to see them change now. It doesn’t help that Anthony Albanese promised not to alter super taxes before the last election.
People are also skeptical about how these policies are designed. The example I mentioned earlier illustrates that taxes are applied to theoretical increases in the value of Humphrey’s assets. The extra $1 million isn’t cash in his hand; it’s unrealized profit, yet he’s facing a tax bill of $85,500. He either has to liquidate some assets or find money elsewhere to cover this. That’s quite a burden, especially if it’s tied to something like farmland in his super fund.
This taxing of unrealized profits is quite unusual and could throw a wrench into the usual tax framework, likely leading to unintended consequences.
I’m not rich so why should I care?
That’s a fair question! As someone jokingly noted on Reddit, “I wish I was worried.” Just keeping in mind, the Treasury estimates that only 80,000 individuals will be affected initially. With around 23 million Australians over 15, that’s roughly 0.3% of the working-age population or the top 0.5% of super savers.
However, here’s a point worth considering—your future self should probably be concerned. The government has chosen not to adjust the $3 million threshold in line with inflation or wage growth, which could maximize revenue for them and, possibly, the budget.
This means younger Australians might find it increasingly challenging to stay below that threshold. Economists like Diana Mousina have pointed out that without adjustments, the average wage-earner could easily surpass $3 million in super by retirement age. Sure, it might seem far off now, but superannuation is a long-term game. Why not create policies that account for the future?
So what will come next?
Now, we’re in a waiting game to see what unfolds when Congress reconvenes, likely later in July. Considerable lobbying from independent lawmakers representing affluent areas has delayed the discussion. The coalition is against the bill, so it will be up to the Greens—the balance of power in the Senate—to decide how to proceed, which could involve negotiating the threshold down to $2 million.
While that seems a long shot, they might push for clearer specifications regarding the threshold. This could be a reasonable approach. Beyond this, the ongoing issue of excessively generous tax benefits for the wealthy will likely remain an ongoing topic for this and future administrations.
