Opinion
If two people each have $4 million in super, how would the tax work?
Noel Whittaker
Money columnistHow does the proposed new tax on super balances over $3 million work in practise? Does the $3 million threshold include both pension and accumulation balances for each individual within a family self-managed super fund (SMSF), or just the accumulation portion?
How are individual balances in the pension and accumulation phases treated under the new rules? For example, if two people each have $4 million in super, but one has $1.7 million in pension and $2.3 million in accumulation, while the other has an even split of $2 million in each, how will they be affected?
Credit: Simon Letch
What about timing? Will the tax take effect retrospectively from July 1, 2025, once the legislation is passed? If so, does that mean it’s already too late to avoid it by withdrawing funds now?
And finally, if the start date is July 1, would withdrawing enough before June 30, 2026, to reduce the balance below $3 million, allow someone to avoid the tax for the 2026-27 year? If the withdrawal comes from the accumulation account and is not a pension payment, could it even escape the tax this financial year?
The cut‑in point for taxing unrealised capital gains on super funds with balances over $3 million is based on the total superannuation balance for each member. It is $3 million per member, so if one person had $4 million in super and their partner had $2 million, the partner with $2 million would not be affected under the proposed rules.
The proposal is that for balances over $3 million at June 30, 2026, the tax will be calculated on the difference in valuation of each member’s account from July 1, 2025, to June 30 next year. Any withdrawals made in that period are counted if the balance at June 30, 2026 is still $3 million or more. However, if withdrawals bring the balance below $3 million, the remaining balance would not be subject to the tax.
The tax applies to the difference between opening and closing balances and makes no distinction between pension and accumulation money, or where withdrawals come from.
Keep in mind this is not yet legislated, and the rumour mill is telling me that it may well be postponed for a year to give the big funds time to get their software systems in order. Watch this space.
I am 70 and my superannuation balance at June 30, 2025 was just under $1.9 million. Am I allowed to make a non-concessional contribution this financial year to bring it up to $2 million, and then follow that with a downsizer contribution (which I’m in a position to make by the end of September)? That would push my balance over the $2 million threshold.
I’m still working, so my employer will continue making super guarantee contributions on my behalf. I also plan to top up my concessional contributions to the $30,000 cap by the end of the financial year. Is this strategy permitted by the ATO and free from penalties or additional tax? I understand that once I start a pension, any balance above $2 million must stay in the accumulation phase.
Downsizer contributions can be made irrespective of your superannuation balance and no upper age limit applies. So provided you meet the other eligibility criteria, you could certainly make the downsizer contribution in the scenario you have.
Downsizer contributions can be made irrespective of your superannuation balance and no upper age limit applies.Credit: Peter Rae
As your total super balance was greater than $1.88 million but less than $2 million, the maximum non-concessional contribution you can make this financial year is $120,000.
Furthermore, concessional contributions can also be made irrespective of your total super balance.
Additionally, bear in mind that you start the pension by transferring a sum to it, but there is no limit to what that balance could go to, provided you are taking the required pension withdrawals each year. This could happen if the earnings on your fund exceeded the withdrawals.
I’m a single 72-year-old home owner and self-funded retiree. After selling and buying a new home, I’ll have $411,000 in assets – $379,000 in shares and $32,000 cash. I understand the assets test threshold for a single home owner is $321,500, so I’ll be $89,500 over. Centrelink’s calculator estimates I’d receive an age pension of $879 a fortnight.
Will I be further penalised under the income test because my share portfolio generates $29,274 a year in dividends and $10,760 in franking credits? Am I overlooking something, or is the $879 figure realistic?
Both your shares and cash are deemed assets, which means the actual dividends and franking credits are ignored for the income test. Instead, Centrelink applies a deemed income rate. Based on your $411,000 in financial assets, the deemed income is $306 a fortnight.
If we also allow $15,000 for motor vehicles and household furniture, your assessable assets are $426,000. At that level, your age pension will be determined under the assets test, and the income test won’t apply. Your pension should be about $835.50 a fortnight, slightly lower than the calculator estimate.
I started an SMSF three years ago with about $800,000, transferring from a super fund so I could manage the share component myself. The balance is now $700,000, with $200,000 in shares and $500,000 in term deposits earning just 3 per cent.
I can’t find secure alternatives that pay more, so I’m considering moving the $500,000 cash back to a super fund, where I believe returns would be higher overall. Does this sound reasonable?
It appears your inexperience with investing has left you with a portfolio producing far lower returns than a standard super fund. In a retail super fund, your money would typically be spread across a mix of assets – Australian and international shares, property, infrastructure, cash and deposits – which should generate stronger long-term returns.
Transferring the cash to a retail super fund is likely to improve your returns and relieve you of the ongoing administration and decision-making required to run your own SMSF.
Noel Whittaker is author of Retirement Made Simple and other books on personal finance.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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