Navigating the New Superannuation Tax: What High-Balance Holders Should Consider

Navigating the New Superannuation Tax: What High-Balance Holders Should Consider

With recent changes in superannuation tax policy, many Australians with larger super balances are wondering about their next steps. A federal government proposal set to begin on July 1, 2025, introduces a new tax for those with super balances over $3 million. While the details are yet to be fully cemented, this upcoming change is creating concern among high-balance super holders.

At Newcastle Advisors, we believe there’s no need to take drastic action just yet. Here’s what you need to know and what to consider as the new tax approaches.

1. Don’t Act Too Soon—Timing Matters

With an official start date of July 1, 2025, the new tax legislation will assess super balances against the $3 million threshold at the *end* of the following financial year, on June 30, 2026. This distinction matters. Unlike other tax changes where being ready on day one is essential, here you have some breathing room.

If your immediate reaction is to pull out funds to stay under the $3 million mark, remember that the assessment date is still over 18 months away. Acting now could trigger capital gains tax and potentially limit your superannuation’s growth. Instead, holding off can give you time to understand the full impact and avoid any unnecessary tax or costs. The legislation is still under review, and the final structure might shift as it goes through parliament.

2. Should You Move Super Funds?

This is likely the biggest question on high-balance holders’ minds, but in most cases, an immediate move may not be necessary. The new tax (known as Division 296) mainly reduces tax benefits on super balances over $3 million but doesn’t suddenly make super a poor option. For many, super remains a tax-efficient environment for retirement funds.

Our analysis shows that the Division 296 tax essentially levels the tax treatment on earnings for amounts over $3 million, bringing it closer to other taxable investment structures. In many cases, leaving your funds in super is still preferable because you maintain access to super’s tax benefits for balances below the threshold. However, if your super balance significantly exceeds $3 million, it could be worth reviewing your options, but it’s essential to keep the long-term tax advantages in mind.

3. Planning for Wealth Transfer and Death Benefits Tax

Beyond Division 296, high-balance holders have always had to consider death benefits tax, especially if their superannuation goes to anyone other than a spouse. In these cases, super balances are taxed upon inheritance. Division 296 may bring this consideration further into focus, as the tax benefits of keeping a larger balance in super start to diminish slightly.

Some may decide to reduce their super balance to avoid future death benefits tax, but it's a delicate balance. Reducing your super balance today to potentially save tax for your heirs means giving up valuable tax concessions on your retirement savings, so it’s a trade-off to consider carefully.

4. Watch Out for Capital Gains Tax

For those considering a move out of super, there’s another consideration: capital gains tax. Moving money or assets out of your super can lead to capital gains tax within your super fund, as any transfer of assets out of super is considered a “sale” for tax purposes. This cost can add up quickly, and in some cases, the capital gains tax may be more than the Division 296 tax itself.

This is why it’s vital to have a clear understanding of the potential capital gains tax costs before making any decisions. The Division 296 tax may apply only to part of your super earnings, and in many cases, paying it could actually be the less costly option.

What Should You Do Next?

As July 1, 2025, approaches, it’s natural to feel anxious about the impact of the Division 296 tax. At Newcastle Advisors, our advice is to take a measured approach. Here’s a summary of what we recommend:

- Wait for Clarity: The tax legislation is still going through the parliamentary process, and with a potential election looming, it’s wise to wait and see if any adjustments occur.

- Understand Your Position: If your super balance is close to or above $3 million, consult with a financial advisor to get a clear picture of how the new tax could affect your retirement strategy.

- Consider All Tax Implications: From capital gains tax to death benefits tax, there are multiple factors at play. Before making any changes, ensure that you’re weighing all potential costs.

- Review Your Long-Term Strategy: The changes may present an opportunity to review your super and estate plans. If a shift in strategy is needed, we’re here to help you make it work with your retirement and wealth-transfer goals in mind.

The new superannuation tax rules are complex, and each person’s situation is unique. At Newcastle Advisors, we’ll work with you to ensure you have the best approach for your circumstances—balancing tax efficiency, retirement security, and peace of mind. If you have concerns or want a customized analysis of your super strategy, don’t hesitate to reach out.

We’re here to navigate these changes with you every step of the way.

#Superannuation #TaxStrategy #FinancialPlanning #NewcastleAdvisors