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The mechanics of the $3 million super tax must be fixed

The recently-announced additional tax on superannuation account balances above $3 million may be reasonable in intent but the proposed methodology appears rushed and will lead to more complexity and poor outcomes. Even if a reduction in concessions above a certain account balance figure (say $3 million, providing it is indexed) is supported, as I do, both the principles AND the mechanics should be right.

While the proposed high-level principle might be fine, some of the mechanics are definitely not.

Financing an ageing population

First, some context. With all the agitating about the cost of superannuation concessions, it is useful to remind ourselves of the purpose of superannuation. The equity issues are real and should be addressed.

Treasury’s Consultation Paper regarding the Objective of Superannuation (20 February 2023) proposes that:

“The objective of superannuation is to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

This is a reasonable primary objective. In addition, superannuation has another purpose, which at a national level is to assist Australia in financing its ageing population. Superannuation concessions should be understood in this context.

Key areas in financing an ageing population are Health, Aged Care, and Social Security/Age Pension, and the capacity of the workforce to fund government expenditure.

Based on the 2021 Intergenerational Report (IGR), forecast changes in Government expenditure are as follows:

Superannuation, strongly encouraged by appropriate concessional treatment, is playing a valuable macro role, and the real aggregate cost of superannuation concessions should be interpreted in this light. As superannuation continues to mature, the reduction in age pension costs (as a % of GDP) is a welcome development.

Notwithstanding this macro view, the need to address equity and fairness issues in super remains.

Ramifications of an additional tax on high-balance earnings

The proposed mechanics include the use of an ‘ATO calculation’ basis for determining earnings corresponding to account balances in excess of $3 million. Not only is this a purpose for which it was never intended, it is far too simplistic. They appear rushed and not properly thought through, and with unintended consequences.

There has been substantial commentary on many of the key issues in recent weeks, such as:

  • the calculation basis for ‘earnings’ on balances in excess of $3 million
  • the lack of indexation
  • the tax on unrealised capital gains
  • the absence of the usual Capital Gains Tax (CGT) discount mechanism and hence CGT discount inconsistencies depending on asset ownership structure
  • cashflow and liquidity issues with illiquid assets
  • treatment of Defined Benefit schemes (subject to consultation), etc.

I agree with many of the criticisms and will limit my comments here to minimise duplication.

Indexation of the $3 million amount

The lack of indexing appears to be a conscious decision. It could be argued that this decision constitutes intergenerational inequity (Millennials/Gen X versus Boomers). On the other hand, you can argue that it’s a deliberate attempt to reduce concessions progressively over the next 30 years. Ultimately, it will affect the top decile (10%) of account balances by 2050 (based on Financial Services Council forecasts).

What is not clear is how an indexation regime for the Transfer Balance Cap (TBC, currently $1.7 million, and potentially $1.9 million from 1 July 2023) interacts with a non-indexation regime for the additional 15% tax. It is feasible with high inflation indexing of the TBC that it will reach $3 million within, say, seven to 10 years.

Tax on unrealised gains

The tax on unrealised gains (accruals-based taxation) appears to violate generally accepted tax principles that CGT applies on realisation. All OECD countries that tax capital gains do so on realisation (Source: Harding, M. (2013) ‘Taxation of dividend interest and capital gain income’) although it is understood that Denmark may be the first to introduce accrual taxation on capital gains later this year.

The tax on unrealised gains (in respect of balances exceeding $3 million) also means unequal treatment in terms of discounting for capital gains (50% personal, and one-third for super). This will add further weight to asset accumulation outside super beyond the $3 million mark, providing a member meets a Condition of Release.

It is not only the unrealised versus realised calculation, but an additional 15% tax on gains (super) versus 50% discounted (outside super). This may be what the Government wants, and is preferred compared to a hard cap regime which forces money out of super.

Will 15% CGT accrual payments over the years be applied as offsets to the ultimate amount of capital gains and CGT on realisation? Or will it be simply additional to the CGT payable on ultimate asset realisation? It’s shaping up as the latter, but it’s not clear from the announcement and the record-keeping is starting to sound daunting.

Large balances in public (non-SMSF) funds are potentially worse off

Large account balances are certainly more prevalent with SMSFs but far from restricted to them. And the issues for members with large account balances in APRA-regulated funds are potentially more significant than for SMSFs, due to their lesser control over the timing of realisation of capital gains.

Reliable and contemporary data on account balance sizes is difficult to access. The Government estimates that the proposed changes will impact about 0.5% or circa 80,000 superannuation fund members. Based on numbers in ASFA’s research paper ‘Developments in Account Balances – March 2022’, and an earlier ASFA publication ‘Superannuation and High Account Balances’ (April 2015), it is reasonable to assume that around a third of those with balances exceeding $2 million to $2.5 million are in funds other than SMSFs and a somewhat lesser portion for balances exceeding $3 million, say 20-25%.

This would translate to about 15,000 - 20,000 members in APRA-regulated funds. 

The issue for such members is that included in the calculation of unit prices is a provision for unrealised capital gains (typically 10% for funds in the accumulation phase).

If such a member is in accumulation phase, and the 15% tax on unrealised gains for the amount of the account balance in excess of $3 million is added to the existing provision, then the effective tax on unrealised gains (either provisioned or actual) is 23.5%, calculated as [1-(.85 x .9)]. In this case, and from a tax on capital gains perspective only, it may be preferable to generate capital gains outside super and access the 50% CGT discount.

This is especially the case if allowing for the prospective Stage 3 tax cuts which will mean a 30% tax rate for incomes between $45,000 and $200,000.

Time to consider the implications

Ideally, there will be a lot more consultation in the enabling legislation. There is time with changes not proposed until 2025-6 so no urgent action appears warranted.

Although there are real and worrying issues, the proposed changes are significantly better than the potential ‘hard cap’ approaches which were contemplated. These would have had major disruptive impacts but perhaps that was just part of the ‘softening up’ process.

For those who can satisfy a Condition of Release, shifting ownership of assets currently in superannuation in excess of $3 million to some other ownership regime (e.g. personal or Family Trust) is worth considering, at least from a taxation perspective, although that should not be the sole or even primary determinant of investment strategies. This may be even more the case with the proposed Stage III tax cuts.

Perhaps this is exactly what the Government wants to achieve without the political backlash associated with hard caps.

Difficult issues apply for SMSFs with a significant portion of relatively illiquid assets, including property with LRBAs, with the impact of annual assessment of tax on unrealised gains, cashflow issues and avoiding selling real assets into depressed markets over the next few years.

Some members may also contemplate whether to make ‘downsizer’ contributions into superannuation, or to ‘upsize’ the family home, with its associated tax advantages, and potentially in conjunction with a home equity release arrangement for generating retirement income.

As always, there are a range of issues to consider including the family home not being income-producing, a concentrated asset and so not great for diversification.

The best solution will always depend on personal circumstances. This all emphasises the need for quality financial advice in coming years.

Given these obvious tax issues and distortions, it is surprising that there hasn’t been a greater outcry, with little sympathy for complaints from the ‘wealthy’.

The warning sign is that if the Government starts making moves on unrealised gains, and effectively diluting the discounting on capital gains, will there be other areas similarly targeted in the future?


Andrew Gale is an actuary, public policy expert in financial services, a Non-Executive Director and a former Chairman of the SMSF Association. The views expressed in this article are focussed on public policy and not financial advice, are personal views, and are not made on behalf of any organisation. This article is not financial or tax advice and it does not consider the individual financial circumstances of any person. No reliance should be placed on this article for personal decisions.


April 06, 2023

QSuper (part of Australian Retirement Trust) opened its 'Self Invest' to the public a while back. It had a feature in it where you could self manage choosing your own investments on the exchange. They just announced that feature will be closed to new members. "From 1 July 2023, the Self Invest option will no longer be offered to new investors."

I think the Govt is keen to get its hands on your money. This has happened overseas. Your money will be put to work in 'investments' they find desirable. It's clear to me that they are doing a lot of work to make sure you can't touch your own savings, whilst saying that you must contribute part of your earnings. It was a good idea. Also, I wish others would wake up that if you are in an industry fund, your cash component is not covered under the FDIC.

April 06, 2023

Please... Have you looked at just how many investment options are offered by all the large funds? You're hardly limited for choice in terms of where your money is invested. Honestly...

April 09, 2023

I am obviously aware of these choices and would prefer to make my own thankyou.

April 03, 2023

Just read that Gratton are suggesting a $2M Cap and to remove the tax free status of Superannuation in retirement.

April 03, 2023

Gratton suggest a lot of things, most of which would be political suicide for any government. With any change of government a multitude of supplicants, rent seekers and carpet baggers have a go for money or change for their pet want, need or cause!

April 03, 2023

Unfortunately if one Google's $5M Superannuation Cap you'll find articles pushing for it that are a couple of years old.

This sort of stuff becomes the thin edge of the wedge often.

There are impending issues with our ageing population that will come to the for with Baby Boomers and GenX hitting preservation age and retirement age over the next 10 to 15 years. I wouldn't rule anything out to be honest.

April 03, 2023

Abolition of Super and Age Pension Means Tests would net Commonwealth and States more tax from wrinklies and result in a boom in multi-generation mansions.

April 02, 2023

Could I suggest that anyone impacted actually does the calculations as per the formula? When you do you will find that nobody, including the mythical $400m fund, actually pays an extra 15%. It is the "Proportion of Earnings" over $3m that is the critical number.

Proportion of Earning = (TSB current FY - $3M)/TSB current FY.

That equation can never = 100%. For mega funds it will go close, but never quite get there

Additional "Tax" = 15%*Earnings*Proportion of Earnings

That is the maths and worth doing.

Taxing unrealised gains is the big issue, convoluted, without precedent, other than State Land Tax and will be ridiculously complex.

April 02, 2023

The definition of earnings is different. There are different earnings for what are two different taxes.

April 02, 2023

Hi Rob
Our fund on 30th June 22 had a total member balance of approx $14.1m. Member split was approx 50/50 between 2 members.
June 30th 2021 total member balance was approx $11.7m.
Most of this gain was unrealised capital gain. Net contributions $27500 each.
15% tax bill for the snaf was approx $94k for 2022.
I believe my figures given yesterday, based on actual data rather than the approx figures as given above, to be correct with a total tax payable being 46.8% of the total "taxable income" of the smsf if we use our smaf as a example for the last 2 years.
I do understand that the new priposed tax has an expanded definition. That is, it is not simply a doubling of the rate from 15% to 30% , but an expansion also of the definition of income, hence why we will be caught up in this mess for more than a tripling of the tax we currently pay.

April 02, 2023

And yes, we already pay huge land tax bills each year, plus insurance pays council rates.
Having been caught up in the 2007 share market crash for approx 30% of the fund, we sold all shares after a 15-month recovery from March 2010, after trading our way out and recouping losses plus more.
Property is a lot less volatile, pandemic issues aside!

April 02, 2023

I am not sure if an earlier post went through, so here is my data for how I came up with almost 47% tax if this new proposal sees the light of day in its current form.
I used my last 2 tax personal returns, for my husband and myself as an example:
Total member balances each approx $7.1m as at 30th June 2022
Total member balances each approx $4.9m as at 30th June 2021
Both contributed $27500 each.
Total SMSF 15% tax payable on 2022 tax return approx $94k
Total calculated tax payable for 2022FY for super returns is 47% of taxable income approx if this new legislation comes into being in its proposed form (approx $293k).
That's more than a tripling of the current 15% tax super tax being because of the expansion of the definition of income. Most of the earnings of the smsf were unrealised capital gains.
Most people are not aware of this issue and its full impact.
Once we also start to draw a pension, we will run out of cash reserves and be forced to sell, much sooner than anticipated.

Richard Lyon
April 02, 2023

Your situation is unusual, as you might appreciate. In addition, the growth in value of your properties in FY2022 is exceptional.
Yes, that is the impact of the Treasury formula that effectively includes unrealised gains (net of tax provisions) in the year's earnings. If your properties had lost value, however, that unrealised loss would have mitigated your income and realised gains, perhaps even to the extent of no additional tax being payable. So the "double tax rate" promoted by the Treasurer's statement and in the media is an oversimplification of the true impact.
By the way, I struggle with your concern about having enough to pay even this large tax bill. A tax bill of $94k means taxable income (effectively cash, since you say that you have no shares) of $627k, of which $27.5k is contributions. That leaves almost $600k of income to pay $293k of tax. Nasty, but your cash balance is surely increasing in this scenario. A more typical growth rate of your properties would sting you less.
Given that Labor wants to cap super concessions, in an efficient manner (which rules out increasing the ATO reporting burden to include detailed earnings data for ALL fund members), the obvious alternative is a hard cap. For many, that would surely be worse.

April 02, 2023

Under proposed tax scheme:
= 94000 + 15% * (MAX(0, 14100000 - 2 * 3000000) / 14100000) * (14100000 - 11700000 - (1 - 15%) * 2 * 27500 + 0)
= $296,780 (using 2021, 2022 data)

Gross 2022 income:
= 94000 / 15%
= $626,667

New tax / Old taxable income:
= 296780 / 626667
= 47.4%

Old tax income does not include unrealised gains.

April 02, 2023

These are the calculations as per the Treasury Fact sheet [Which contains its own errors!!]

"Earnings" = TSB Current FY- TSB Previous FY + Withdrawals - Contributions

On your numbers "Earnings" = $7.1m - $4.9m- $27,500 = $2,172,500

"Proportion of Earnings" = (TSB Current FY - $3m)/TSB Current FY

On your numbers "Proportion of Earnings" = ($7.1m-$3m)/$7.1m = 0.577465

Additional Tax = 15%*Earnings*Proportion of Earnings

On your numbers additional "Tax" = 15%*$2,172,500*.577465 = $188,181

That is the way the new formula actually "works". On Treasuries definition of "Earnings" [which is a joke as it includes unrealised gains] your additional Tax of $188,181 is 8.7% of "Earnings"

Zillion questions ie now you have been taxed on Unrealised Gains, what happens when you actually realise those gains? The point of Andrew's article is that there are many unknowns potentially leading to massive accounting complications and it desperately needs to be cleaned up. The clear target is to smash large balances in Super, predominantly in SMSF's and they will succeed. Money is already moving.

There is zero fairness or morality in forcing people to save in Super for retirement, when they have zero idea as to what the rules will be when they get there

Richard Lyon
April 02, 2023

"Taxing unrealised gains is the big issue, convoluted, without precedent, other than State Land Tax and will be ridiculously complex."

Precedent is the big issue here, not complexity. This calculation is extremely simple for the ATO to apply using data that it already collects. And the alternative is horrendous, involving detailed earnings reporting for ALL super fund members. That would impose a huge cost burden on the 99.5%, to ease a perceived inequity for the 0.5%. Even if you prefer to substitute 80% and 20% in that sentence, it still wouldn't stack up.

April 02, 2023

The issue will be when we need to draw an income. This period is fast approaching.
There are 2 of us about to draw an income and we have no savings outside of our hone or super.
If we did have a year of a loss, which has never happened so far for us, the new tax will have to be paid in a loss year and we will never be able to get a refund on this until a positive year.
I suspect most people will have little sympathy, Richard, like yourself. This new tax iproposal is a harsh tax on a few people that did nothing wrong. I will be very disappointed if defined benefits funds are not included if this comes to fruition.
There will be many more than 80k caught up in this I would think if defined pensions are included.
But that would include judges and politicians so they may exclude these with the excuse that this is too hard to calculate for those..
Also, imagine if one spouse passes away and the funds are not quick enough in being disbursed?

Richard Lyon
April 04, 2023

VW, I do indeed have sympathy, because a repetition of FY2022 would be very expensive for you. And because you clearly need to rethink the strategy that you have adopted, which is a painful exercise with potentially significant cost implications. I presume that you are in discussion with your financial advisor about it.

What I was trying to say was that FY2022 is highly unusual and therefore not typical of what you can expect in future. Worth having a good chat to your advisor about this!

As others have pointed out, this additional tax is different from the "normal" tax regime for super, including the fact that it uses a different definition of "earnings". If you have a large unrealised loss one year, you may find that you are paying tax on positive "normal" taxable income but have no additional tax to pay because the earnings for that tax are negative. And that would also mitigate some future additional tax.

No, you've done nothing wrong, VW. It's just that the Government (as indeed did the previous one before it) wants to wind back the future concessions granted to people in your position. Hence the existing Transfer Balance Cap and this proposed additional tax.

April 04, 2023

Thank you Richard.
The workings are a simple calculation for the ATO hence why they prefer this method.
To exclude unrealused capital gains is an added expense for probably the bigger super funds. SMSFs have this data readily available in most cases I would think.
I am eager to find out if defined benefits funds will actually be caught up in this new measure, from a "fairness" point of view.
I would think that most would accept 30% tax on the old definition of "earnings".
Adding in the land tax we pay, and using my example, total taxes would have been well in excess of 50%! ....
I would think that many people would be rearranging their affairs, if they can, and could you blame them? Better to control your assets outside of super if this measure sees the light of day.
Capital gains tax is a given, but not like this. And how to account for the CGT with this new tax on sale? An accounting nightmare for a lot of SMSFs I would think,. I am assuming of course that there would be a credit for that component of the new tax, but that is not clear yet?
My husband's friends at our local gym are talking about it too. This is gen y, and gen z, not yet much wealth, but aspiring. They live in working class suburbs, as do we. They are all looking to minimise what they put into super now.
It makes sense that in a few years the concessions for super will outweigh the pension, as the whole point was to get people off the pension long term.
I wonder if using super as a savings vehicle outside of compulsory employer contributions may come to an end if this gets passed? I see that this legacy of Paul Keating for all workers, will be a shadow of what it could have been and we will be relying on govts again in old age, which of course, govts prefer. Without indexing, and with continual tinkering around with people retirement dreams, the future of superannuation is under a massive shadow.
As a side note, Howard and Costello got it wrong when they made retirement income in super tax free, in my humble opinion anyhow.

April 04, 2023

"Howard and Costello got it wrong when they made retirement income in super tax free": Whereas Age Pension is not only tax free, due to Means Testing, but also Capital Free, government guaranteed and indexed to cost of living. With Super, retirees have to supply their own capital, risk their capital on mercurial markets and hope returns exceed inflation and taxes. Which makes Super unattractive / uncompetitive with the Age Pension.

Kym Bailey
April 04, 2023

Sure, it doesn't get to 15% until around $100m but that is calculated on the notional earnings, not the real earnings. If you run the effective tax rate over the actual taxable earnings for the member, it is well above the headline rate for most except those close to the $3m.

April 02, 2023

Thanks everyone for such great information and input. I have only just found this site. Using mine and my husband's last 2 tax returns as an example, and adding in the 15% tax paid by our smsf, the combined tax on the smaf and its members on the super balances comes to 48.6%, based on our fund's "taxable income".
This is because of the expanded definition of earnings.
This is far in excess of the 30% that the general public is made to believe the new rate to be.
This is also far in excess of our personal overall tax rates and far in excess of any investment plan assumptions that we have had in our planning over almost 40 years.
We have lumpy properties in our fund that have performed exceedingly well, taking us above the $3m threshold each. Not that it has been an easy, stress free ride - far from it.
We have sacrificed since we were both teenagers (even before if you count saving pocket money as a child with the aspiration of one day buying a home) and have worked hatd for over 40 years wirh the aim to hopefully maintain a lifestyle that we worked toward and to also maintain our independence into old age.
I am sorry if any terminology s incorrect.
I have been researching since 28th February when this announcement was made and there is very little being said by anyone from what I can see.
Very few seem to understand that the definition of income has changed very significantly, therefore markedly changing the expected 15% tax increase on balances over $3m.
In a few short years, especially once we start drawing on a pension from our smsf, we will run out of cash reserves, and stupidly, because we have no cash reserves outside of super, exceot loans to children struggling with mortgages, we will either have to sell our home or our smsf investment properties. I would not call this dignified, at least not for us. And that's why I am hyperventilating (note to Jim Clalmers).
I find it odd that we would be allowed to use cash outside of super to pay the tax. How isn't this then a super contribution and how does NALI not come into play? I'm assuming that it's because of technicalities that I don't care for ATM.
Thanks again for the interesting articles and comments.

April 05, 2023

A $14 Million fund with no ability to generate cash reserves? Hmmmm...

In any case, it is a tax that can be paid personally... Maybe some of those 'minimum' pension payments can be used top clear the tax bill?

PS There is nothing to stop you exiting the super system if it is no longer reaping you sufficient taxpayer funded concessions.

Tony Dillon
April 01, 2023

Another issue with the capital gains treatment is retrospectivity.

Chalmers said when announcing the additional tax, "it applies to future earnings – it is not retrospective”.

Yet capital gains built up over potentially many years will be taxed at a different rate if realised with a balance greater than $3m, such that the proposed tax regime will in fact be retrospective.

Martin Brown
April 01, 2023

Only the increase invalue over a year will be included in earnings, so historical gains are not being taxed by this measure. There is no retrospectivity.

Tony Dillon
April 01, 2023

My comment refers to "realised" gains.

Richard Lyon
April 01, 2023

Why does my computer think that you made this comment tomorrow (1 April), Tony? Maybe it's trying really hard not to be retrospective!

Any way, I have to agree with Martin here. If you have an unrealised gain of X in an asset worth A when this regime starts, then that is in your initial TSB. If you sell that asset for A during the year, it has not contributed to earnings, because the unrealised gain of X is swapped for a realised gain of X.

If you sell the asset during the year for A + Y, you have reduced unrealised gains by X and increased realised gains by X + Y, for a net impact of Y on your earnings - all of which you earned during the year.

Finally, if you don't sell the asset, but its value increases to A + Y, then unrealised gains increase by Y, with no change in realised gains, and your earnings for the year include that Y of URG. Again, that arose during the year and was not contributed to by the X in URG at the start of the year. In the next year, you now have a starting asset value of B = A + Y, and only future earnings will count towards future years' tax.

Tony Dillon
April 01, 2023

Hi Richard, maybe the date stamp is telling us we are April fools?

I was more coming from the angle of built up gains prior to the increased tax, realised after the change. A simple example.

Suppose I bought some shares in my SMSF years ago for $X and they have doubled in value. Suppose I have a super balance > $3m. If I was to sell those shares prior to the introduction of the new tax, I would pay CGT of 10% x $X (CGT discount: 1/3 x 15%). If I sold after the change (and the gain was still $X), I would pay 20% x $X (again, 1/3 CGT discount). So I pay an extra 10% on gains accumulated years before the new regime. That’s retrospective.

Richard Lyon
April 02, 2023


Your hypothetical TSB includes the $2X in shares, with the $X unrealised gain. If you sell the shares, your TSB will include $2X in cash instead of the shares, but the TSB will not have changed (at least, not as a result of this sale). Treasury's formula calculates earnings with reference to the change in TSB, so there is no additional tax payable in this case. You still pay the 10% tax under the base rules.

This is the flip side of the effective inclusion of (new) unrealised gains in the earnings calculation.

Tony Dillon
April 02, 2023

Richard, the $X gain is taxed at: ((2/3 x 15%) + ((proportion over $3m) x 2/3 x 15%)) x $X.

That’s clearly different to the current arrangement where the tax applicable to the gains would be a straight: 2/3 x 15% x $X.

That is, earnings accrued in 'prior years' will be taxed differently. Therefore it’s retrospective.

If the aim of the proposal is to not be retrospective, then gains accumulated prior to the start of the new tax should not be subject to the additional tax. That is, you would need two bases for the CGT calculation. The cost base on purchase of the asset, and the value at the date the new tax regime commences.

Richard Lyon
April 04, 2023


You have to let go of your understanding of conventional taxable income to assess the impact of the additional tax.

Let's use some numbers to illustrate.

Suppose that, at the start of the year, your one-member SMSF has $3M of cash and $2M in an ETF with $1M unrealised gain. With a 10% tax provision for the URG, the member's total super balance (TSB) is 3 + 2 - 0.1 = $4.9M.

During the year, the ETF doesn't change in value; the cash earns $0.1M net of 15% tax; and, for simplicity, there are no contributions, expenses or withdrawals.

At the end of the year, the TSB is 3.1 + 2 - 0.1 = $5M.

Earnings for additional tax purposes are 5 - 4.9 + 0 [withdrawals] - 0 [contributions] = $0.1M, and the proportion subject to additional tax is (5 - 3) / 5 = 40%. So additional tax of 15% x 40% x 0.1 = $6,000 is payable.

Now suppose that the member sold out of the ETF on 30 June, realising the $1M gain and adding $1.9M to cash after paying the 10% CGT on that realised gain.

Now the total cash is 3.1 + 1.9 = $5M. There are no other assets or liabilities, so this is the TSB.

Earnings for additional tax purposes = 5 - 4.9 = $0.1M, as before, with the same proportion (40%) subject to additional tax. Realising the historical gain has NOT given rise to extra additional tax.

The difference is at the base level of tax, where the SMSF now has had to pay tax of $0.1M on the realised gain. But that has nothing to do with the new regime (unless the member is selling out to avoid holding assets above $3M, of course).

There is nothing magic in the numbers that I have used. You could complicate the example with contributions and withdrawals, as well as expenses, and you would reach the same conclusion - namely that, from an additional tax perspective, there is no difference between holding and realising this historical gain.

Tony Dillon
April 04, 2023

Richard, in this instance yes, prior gains do not come into the equation. However, retrospectivity will still exist in situations where an asset held for say many years, has an unrealised gain at the commencement of the new tax, such that the TSB is over $3m. In that situation, any earnings from the new tax date will be subject to the additional tax.

If the prior year gains were not included in the opening TSB and subsequent TSBs for earnings calculation purposes, and were never realised, the threshold may never be breached. So gains accrued in prior years can affect the amount of tax paid under the new regime. Therefore it is retrospective.

Note, the ultimate capital gains would still be captured if eventually realised.

Richard Lyon
April 05, 2023


That's an extremely esoteric perspective!

Or perhaps not. This theoretical member has been patting themselves on the back for avoiding tax by gaming the system and not realising a huge gain but will be caught by the additional tax. And that's unfair.


April 05, 2023

No. They will not. Capital gains will not be taxed differently. As previously stated, it's ONLY the year on year growth. There is nothing retrospective about this from a CGT point of view.

April 01, 2023

This article shows why the $3m is so unfair. Not grandfathering the extra 15% tax is bad enough, but the way the tax on amounts over $3m will be applied is a shocker – you are taxed on unrealised gains.

What the article doesn’t cover is that, as the tax is charged to you personally, you will then be charged Provisional Tax in future years on that first year’s unrealised capital gains so you cop a double tax whammy. And yet you have no actual cash to pay for these unrealised capital gains unless you realise the assets themselves.

This will effectively make it very hard for SMSFs once your balance gets towards $3m and act to force older people into large Retail and Union controlled Industry Funds who can work it all out for them and have the depth and divisibility of assets to enable the Superannuant to withdraw the cash necessary to pay the tax that they will be levied effectively twice on their unrealised capital gains. It will also make investment strategy for SMSFs very difficult indeed………………… and most people will be dealing with all this when they are losing or have lost their marbles.

It is quite wrong and unfair. And will significantly damage Superannuation as a savings vehicle for retirement pushing up current personal consumption and meaning more people rely, at least in part, on the Government in retirement. And where will this additional impost on Government be funded from??

There are clearly other Agendas at work.

PS: Meanwhile, for ex-politicians and ex-public servants on Government paid UNFUNDED Defined Benefits Pensions, the cheque just keeps rolling in every fortnight, CPI adjusted twice per year! And these Pensions are UNFUNDED to the tune of Trillions of dollars. No risk, investment skill and effort, or hassle or Provisional Capital Gains Tax required. And the private sector self-funded retired Superannuant helps pay for that. Again a double whammy in unfairness and inequity.

April 05, 2023

It may be that SMSFs are not appropriate once people get to a certain age for a number of reasons. Especially if they have lost their marbles. But for a well run fund there is no reason why this tax/levy is any different within an SMSF or one of those evil funds you espouse. And please, nobody who is currently capable of saving $3 Million in super is likely to be an age pension candidate to begin with. If super is not as attractive they will simply save elsewhere. 

Andrew Gale
March 31, 2023

Hi Mark - I agree. With these changes, it seems entirely logical that Condition of Release rules are revisited for account balances in excess of $3m - it would also seem logical for the Government to support if they are focused on the cost of superannuation concessions.

April 01, 2023

Well an article I read had Chalmers saying that $3M in Superannuation was sufficient for retirement. I don't disagree, some may want more but certainly don't need more and no one is being stopped from having more or having more wealth outside Superannuation.

If $3M is sufficient then by having achieved that balance, one has met the sole purpose test of providing for their retirement so seems only fair and reasonable to be allowed any amounts over that amount.

April 05, 2023

This seems to be a reasonable alteration to the access rules if a new tax is to be imposed on people before reaching retirement age. As long as it is an optional withdrawal. As I suspect that after all the shouting is done, many will still want to leave their money in super once the dust settles. Even with this extra tax.

John N
March 31, 2023

Superannuation in Australia when it was introduced was all about diminishing the group of retired people who required a government pension to live on thus diminishing the tax burden to fund pensions.
Over time there is a high probability a sensible case will be made for indexing the $3mil max account balance per person.
Given the low probability of returning to stupid cash rates like 0.10% and the damage this type of policy does, then one would expect a reasonable achievable return on investments without too much risk would be 5%. Surely 5% x $3mil = $150K per account holder annually in pension phase with no tax is ample income to live on.
All the noise relating to this would seem to come from a small section of the population that seem to think they are hard done by not being able to live off of $150K free of tax per year per person. (need of indexing aside)

Possibly as Andrew highlights the subtle message is best not to have any more than $3mil per person in Super.

March 31, 2023

"was all about": a better retirement for those who paid (net) tax, the Age Pension for those who did not.

Tax free, risk free 5% in excess of inflation, capital exhausted:
= PMT((1 + 5% + 2%) / (1 + 2%) - 1, (100 - 60), -3000000, 0)
= $172,493.66

Tax free, risk free 5% regardless of inflation, capital exhausted:
= PMT((1 + 5%) / (1 + 2%) - 1, (100 - 60), -3000000, 0)
= $128,555.88

Tax free, risk free 5% in excess of inflation, capital inflated:
= PMT((1 + 5% + 2%) / (1 + 2%) - 1, (100 - 60), -3000000, 3000000 * (1 + 2%) ^ (100 - 60)
= $116,332.54

Tax free, risk free 5% regardless of inflation, capital inflated:
= PMT((1 + 5%) / (1 + 2%) - 1, (100 - 60), -3000000, 3000000 * (1 + 2%) ^ (100 - 60))
= $39,526.42

Geoff R
March 31, 2023

"Surely 5% x $3mil = $150K per account holder annually in pension phase with no tax is ample income to live on."


"not being able to live off of $150K free of tax per year per person."

John you need to read up on TBC (Transfer Balance Cap). I know the mainstream media and commentators frequently make these spurious claims (and the masses often believe them and are "outraged") but you simply cannot put $3m per person into a tax free super pension. The current limit is $1.7m and is expected to go up to $1.9m at the start of July. Anything above the TBC pays exactly the same tax as everyone else in accumulation mode (15%).

March 31, 2023

"cannot put $3m per person into a tax free super pension":

Currently correct.

Disbursement ('pension') account balance can exceed Transfer Balance Cap when income exceeds withdrawals.

April 05, 2023

That may be true with regard to TBC. But 5% of $3 Million can still be withdrawn from super tax free over age 60 (and retired). Even if from non-pension assets. Surely more than enough to retire on tax-free? And if it's not, is it fair to expect taxpayers to subsidies the extras? As Big Kev once said... "Fair shake of the sauce bottle"...

April 01, 2023

John, people complaining do not want to hear this reality!
What % will be affected by the changes and to what extent?

April 01, 2023

"What % will be affected by the changes and to what extent?"

Any change to policy should ideally be done because it is fair, based on sound logic, the law or good principles. Good policy is fair and seen to be fair. Why single out superannuation when other egregious examples of "advantage" stand out such as the CG tax exemption of one's PPOR (many buy, renovate, sell and repeat many times) excessive negative gearing advantage by owning multiple investment properties, politician's and public servants 15.4% superannuation contributions and legacy unfunded defined benefit schemes?

Take the franking credit debacle in 2019/2020. Albo and Bowen tried to push it through, knowing full well that their justification was deceptive and dishonest and most people don't understand franking credits. They reasoned that the political cost was minimal and wouldn't really affect many labor voters! Fair justification for bad policy?

April 01, 2023

"CG tax exemption of one's PPOR (many buy, renovate, sell and repeat many times)":

justifiable where costs of holding such as inflation, interest, depreciation, property tax, ..., are not deductible and were they deductible tax loses would be made resulting in no tax payable or tax refundable.

April 02, 2023

@Dudley. I get your point Dudley and in principle don't disagree.

My main point however, is that the government somewhat unfairly chooses to cherry pick what it attacks to harvest more tax, and often deceitfully, deceptively and cravenly leaves other targets alone. It's largely politics.

Given our debt, deficit and spendthrift spending clearly more tax and some cost cutting are required as ship wrecking rocks are dead ahead!

April 03, 2023

@John N. The reality is no one needs more than $3M in Superannuation to retire.

Wanting and needing are 2 different things.

Removal of the Reasonable Benefits Limit and allowing million dollar deposit boosts to Super were a big contributor to where we are now.

The purpose of Superannuation was to allow people to be able to fund or part fund their retirement. For locking our money away for decades we received generous tax concessions.

These concessions then went on to be taken advantage of to become a wealth creation tool which is outside the original purpose of Superannuation.

A large % of people die with most of their Super untouched or barely used and passed on to children.

The implementation of this new rule does'nt stop people from having more than $3M in Superannuation, you just lose some of the concessions if you do.

There is also nothing stopping people from accumulating wealth outside Superannuation, so no one is being stopped from becoming wealthy.

Those of Preservation Age or Retired have options to keep or move funds in excess of the $3M so have a choice of how this new rule impacts them.

Those under preservation age should also have the option via a change to conditions of release rules to allow them the choice to keep funds over $3M in Superannuation or take it out.

As stated by others, there is a lot of misunderstanding of how the new tax will actually work if implemented as is.

If you had $3M at start of year and $4M at end of year, you don't pay $300k tax (30%) not even $150k tax (15%) on that $1M increase.

People complaining about poor liquidity issues in their funds, affecting their ability to meet this new tax have no sympathy from me, that's simply poor planning having limited liquidity.

Without final legislation being passed we still don't know what we will end up with.

Indexation of the $3M may come in, taxing unrealised gains may be out. Access for those under preservation age may come about.

Another one I sent in when the government were taking public submissions was the SG from your employer. If you have more than $3M would you be able to take the employer payment as wages or salary instead of going into your Superannuation that is over the TSB limit?

Hopefully they will be true to form and release more information to the public before committing anything. Governments quite often release stuff to gauge public perception prior to implementation of ideas. This $3M TSB being a prime example. They threw out an idea and a harvesting feedback, hopefully some sort of sensible legislation comes from it.

Personally, I'm affected but not against the purpose of it, just how it is so far going to be implemented.

April 03, 2023

"People complaining about poor liquidity issues in their funds, affecting their ability to meet this new tax have no sympathy from me, that's simply poor planning having limited liquidity.":

Liquidity is not a problem when predictable tax is a portion less than 100% of realised yield / return / gain.

Liquidity is a problem when predictable tax is a substantial portion of unpredictable unrealised yield / return / gain.

Richard Lyon
March 31, 2023


The Treasury formula means that what is called "earnings" is actually the amount of the increase in TSB that is not explained by contributions (net of tax) and withdrawals. For an account in an APRA-regulated fund, that means that "earnings" reflect the movement in unit prices, so they are net of both fees and the increase in tax provisions. That should be similar to the position for a member of an SMSF, where the balance reflects earnings net of expenses and tax provisions.

The relative advantage of the SMSF over the APRA-regulated fund in relation to the timing of realisation of capital gains seems to be unaffected by this tax.

Yes, this tax may change decisions in relation to matters such as downsizer contributions, but any such decision should take into account both the fact that the tax doesn't apply to the proportion below $3M and the possibility that tax-favoured structures outside super may be targeted in due course.

Having said that, it would appear to be entirely consistent with the Government's philosophy that excess super (the amount above the $3M threshold) should be allowed to be transferred out - subject, of course, to sensible constraints.

By the way, it's hard to discuss this issue properly without useful (and correct) terminology.

TSB is an individual's Total Superannuation Balance. It is NOT the $3m threshold. Unfortunately, Treasury hasn't given us a useful expression for this amount. This is from the Overview in the document accompanying the Treasurer's 28 February media release:

"The Government is reducing the tax concessions available to individuals whose total superannuation balances exceed $3 million. Individuals with balances over this threshold would be subject to an additional tax of 15 per cent on the earnings on any balance that exceeds the $3 million threshold."

Finally, in relation to taxing unrealised gains: Yes, it would be highly concerning if this were seen as a precedent applicable to mainstream cases. In this particular case, however, the alternative of identifying the components of earnings and reporting them to the ATO would be hugely onerous, since it would have to be done for EVERY fund member. Thus, what is important is to secure agreement that this is a calculation of convenience and is NOT a precedent.

Andrew Gale
March 31, 2023

Richard, thanks for your useful comments. Agree with your observation that it would be logical to amend Condition of Release rules to allow the excess of TSB above $3m to be transferred out, with some sensible rules and constraints. I think there is a risk of creating a precedent regarding the taxation of unrealised gains (accruals based taxation). The mainstream response to these changes has been relatively muted so far, with little sympathy for an issue deemed targeted at the 'wealthy' - this tame response may only encourage a Government focused on other revenue raising or concession reducing initiatives. A louder voice is required in responding to this particular change.

Richard Lyon
March 31, 2023

I might add that it would be reasonable to take an argument to the table to the effect that the additional tax rate should broadly double the effective tax rate on gross earnings above the threshold. For the avoidance of doubt, that is the rate payable (or provisionable) before allowing for franking credits, so it is 15% on income and short gains and 10% on long gains.

Ignoring fees, this rate is found from the formula t* = t / (1 - t), where t is the effective tax rate on standard rules and t* is the additional rate on earnings above the threshold.

If ALL earnings are from long gains, t = 10% and t* = 11.11%.

If ALL earnings are from income and short gains, t = 15% and t* = 17.65%.

So, the first thing that is apparent (and was perhaps not obvious in advance) is that a 15% additional tax rate effectively makes some allowance for long gains! In fact, if t* = 15% then t = 13.04%. That's equivalent to almost 40% of earnings being from long gains.

Allowing for fees reduces the equivalent effective tax rate for a particular rate of additional tax. It gets complicated here, because the impact depends on the relativity of the fee to the gross earning rate. For example, a fee of 1% of assets is 10% of the gross earnings at an earning rate of 10%, but 20% at an earning rate of 5%.

Feel free to do your own calculations, but I reckon that the proposed 15% is equivalent to doubling an underlying effective rate of 11.74% if fees are 10% of earnings or 12.39% for fees at 5% of earnings. Respectively, that would mean 65% or 52% of earnings being long gains. On that basis, 15% is starting to look not too unreasonable at all, whether by luck or by good judgment!

March 31, 2023

"$3 million super tax must be fixed":

Abolishing super would fix it promptly.
Save $50,000,000,000 / y.

Abolishing Age Pension Means Tests simultaneously would fill Age Pension Sour Spot.
Cost < $50,000,000,000 / y.

Set interest rates to greater than inflation and even savers would be happy.

March 30, 2023

It's great you believe in the intent but let us not overlook that the concessions provided to high-income earners still don't exceed the benefits paid to full age pensioners but a material amount. Moreover, high-income earners pay 30% to enter the system versus 15%. Already very progressive I'd suggest.

Moreover, this policy will do nothing for sustainability or equity given it's so narrowly focused (tall poppies syndrome).

The unrealised tax accounting approach is farcical in that it assumes anyone in this position will hold it past FY end and be forced to pay a higher rate of tax than via a realised gain position. It more fundamentally means you can't hold quality assets and let them compound over the long term which has massive consequences for the capital markets. The ATO will also have a field day trying to monitor the tax harvesting.

All in all exceptionally naive given it won't achieve $1 benefit to govt coffers over long term as larger SMSF will simply move their money outside of super (buy and hold, gift etc)

Andrew Gale
April 02, 2023

I think you need to distinguish between high-income earners, and superannuation members with substantial account balances (TSB exceeding $3m) - they are obviously correlated but are different concepts, and one is a 'flow' measure and the other a 'stock' measure. That said, the cost of concessions for larger TSBs (say $5m+) is not as high as commonly reported (e.g. does not allow for the offset of avoided social security costs) but is still not trivial.

Ray Cameron
March 30, 2023

Perhaps a fact to consider in setting a fair TSB is the indexed TBC ($1.7m, $1.9m) and its effect on a reversionary beneficiary in the case of the death of their spouse. Before the TSB was introduced one could move any excess of the TBC to one's accummulation fund, without a tax penalty. The current $3m limit would penalise any couple which had followed Keating's advice to look after yourself and not depend on the Aged Pension. If $1.9m is the indexed TBC then the Indexed TSB should be $3.8m.

Andrew Gale
March 31, 2023

Thanks Ray - I expect that the 'die is cast' regarding the $3m figure for determining tax based on TSB. The critical issue is that the $3m figure be indexed, as well as dealing with tax treatment of unrealised gains, as noted in the article.

Glenn Crichton
March 30, 2023

Thanks Andrew a balanced and thoughtful article.

Andrew Gale
March 31, 2023

Thanks Glenn.

March 30, 2023

Not enabling a condition of release for those under preservation age to access amounts over $3M if they wish is also not fair.

A 45yo with more than the $3M TSB has to pay the unrealised capital gains whether they like it or not. They should have the option of moving excess funds out of Superannuation to invest elsewhere if they choose or think they could get a better financial outcome outside of Super.

Andrew Gale
April 02, 2023

Mark - I agree. I think one of the key emerging issues in the enabling legislation will be amended Condition of Release provisions for members with balances in excess of $3m. Whether or not you agree with the level of concessionality applying pre-2025, up to now some members have built up substantial balances (in excess of $3m) in good faith based on the rules applying at the time. If the Government changes the rules for such members, it only seems fair to address the Condition of Release issue, rather than these members being stranded in respect of the excess above $3m. If the Government is focused on the aggregate cost of superannuation concessions, they should be happy to accommodate such flexibility. BTW, the aggregate cost of super concessions is substantially overstated - a topic I may cover in the next few weeks.


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The net cost of superannuation concessions is not so gross

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