$3M Super Cap: What's changed and what it means for you
After months of concern from industry and community groups, the Federal Government has refined its proposed Division 296 superannuation tax regime and sensibly, walked back some of the more controversial aspects.
What has changed
- No tax on unrealised gains: The proposed tax on unrealised capital gains has been scrapped — a welcome return to sound tax principles.
- Tax to apply only to realised earnings: Division 296 will now only apply to income and gains realised when assets are sold.
- Indexed thresholds introduced:
- The $3 million threshold will now be indexed over time.
- A new $10 million tier has been introduced, where earnings above that level will attract a total tax of 40% (15% base + 25% additional).
- Start date pushed back: Implementation is now scheduled for 1 July 2026, giving more time for individuals and advisers to prepare.
- Defined benefit pensions to be included: These are expected to fall under the new framework — although exactly how this will be administered remains unclear and will require further legislative detail.
Who is impacted
- The rules apply per individual, not per fund.
- If your total super balance exceeds $3 million, some of your earnings — such as dividends, rental income, or realised capital gains — may attract the higher tax.
- For most Australians, these updates will have no impact at all.
How it works
If for example, you have a $6 million balance and earn $300,000 in a year. Half of your balance (the portion above $3 million) is subject to the higher tax rate, so roughly half your earnings — $150,000 — would attract an extra 15%. That’s around $22,500 in additional tax, instead of the $45,000 that would have applied under the original proposal. It’s still a higher rate for very large balances, but crucially, it only applies when you actually realise earnings by selling assets.
What to consider
Even with these changes, super remains one of the most tax-effective ways to build wealth. For clients approaching or above the new thresholds, now’s the time to review:
- How your assets are structured and where income is generated
- Whether partner balances can be used to share assets more evenly
- The timing of withdrawals or asset sales
- Estate-planning implications for larger super balances
What ths means for you
These changes remove much of the uncertainty and complexity that had overshadowed earlier proposals — particularly the challenge of taxing unrealised gains. While the new framework still introduces higher taxes for very large balances, it also reflects a more pragmatic and politically sustainable approach.
Superannuation remains one of the most tax-effective wealth vehicles available, and the removal of the unrealised gains tax, combined with indexation and a longer lead time, means clients can continue using super with confidence.
We’ll continue to monitor the legislative process and provide updates as the details become clearer. In the meantime, if you would like to discuss what these changes might mean for your superannuation or retirement strategy, please contact your FMD Adviser.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.