How the $3m super tax will change SMSFs

The proposed $3 million superannuation tax—often called the "super tax"—is set to significantly change the landscape for Self-Managed Superannuation Funds (SMSFs) in Australia. Announced by the federal government, the policy will apply an additional 15% tax on earnings from total super balances above $3 million starting from the 2025–26 financial year. This means affected individuals will effectively pay 30% on earnings above that threshold, up from the current 15%.

Impact on SMSF members

SMSFs typically attract wealthier individuals who prefer greater control over their retirement savings. Many SMSFs hold balances well above $3 million, often through a combination of property, shares, and private investments. These members will now face higher tax liabilities, particularly if their fund generates substantial unrealised capital gains. Unlike the current system, the new tax applies to unrealised gains—this is a fundamental shift. It means members could be taxed on paper profits even if they haven’t sold the underlying asset or received any actual income.

Strategic shifts

The tax will likely force many SMSF members to rethink their strategies. High-balance members may consider transferring assets out of super, using family trusts, or reducing contributions to keep their balances under the $3 million mark. There may also be a push to diversify into lower-growth or more stable assets to avoid large swings in valuation, which could trigger unexpected tax burdens.

Accountants and financial advisers will need to work closely with SMSF clients to manage valuation timing, reconsider pension strategies, and reassess the long-term value of keeping funds within an SMSF versus other vehicles.

Administrative challenges

For SMSFs, particularly those with complex or illiquid assets, the new rules create administrative headaches. Valuing assets accurately each year to calculate unrealised gains will add cost and complexity. This could make SMSFs less appealing for high-net-worth individuals compared to industry or retail super funds, which can more easily absorb and manage compliance burdens.

Broader consequences

This tax marks a shift toward targeting the top end of the super system, reframing superannuation as a retirement vehicle rather than a wealth shelter. While only a small percentage of Australians are directly affected, it introduces a precedent: taxing unrealised gains, and treating large SMSFs differently.

In short, the $3 million super tax will compel SMSFs to rethink asset strategy, increase their administrative burden, and possibly reduce their appeal for wealthier Australians.