It’s one of the biggest questions Australians approaching retirement are asking right now: what does the new $3 million super tax actually mean for me?
For Mike Beal, Senior Financial Planner at Wealth Architects on the Sunshine Coast, the answer starts with perspective.
“Yes, the rules are changing,” Mike says. “But super is still one of the most tax-effective investment structures available in Australia. The conversation shouldn’t be about abandoning super – it should be about making smarter decisions within it.”
The new legislation, known as Division 296, introduces an additional 15% tax on earnings attributable to super balances above $3 million. Since the announcement, it has sparked concern among Australians with growing retirement balances – particularly those worried they may be penalised for building wealth inside the super system.
But according to Mike, the headlines don’t always tell the full story.
“For many people, especially couples, there are still significant opportunities to reduce exposure and structure things more effectively,” he says. “Good planning becomes even more important under these rules.”
What is the $3 million super tax?
Division 296 applies an additional 15% tax to earnings linked to the portion of an individual’s super balance above $3 million.
Importantly, the tax applies per individual – not per household – which creates meaningful planning opportunities for couples.
Mike explains that understanding how super is already taxed helps put the changes into context.
Currently:
- Earnings on super in accumulation phase are generally taxed at 15%
- Pension phase balances up to the transfer balance cap (currently $2 million per person) are typically tax-free for Australians over 60 who are retired
- Under Division 296, earnings attributable to balances above $3 million attract an additional 15% tax
- For extremely high balances above $10 million, a further 10% may apply, bringing the total effective tax rate to 40%
While that sounds significant on paper, Mike says context matters.
“Even with Division 296, super can still be substantially more tax effective than investing personally or through many other structures,” he says.
Why many Australians are overestimating the impact
When the policy was first announced, Mike says some clients immediately assumed they should move money out of super.
“In most cases, that’s not the right response,” he says. “People hear ‘new super tax’ and assume the benefits of super disappear. They don’t.”
Mike points to a common example: a couple with $6 million combined in super, split evenly between them.
Because Division 296 applies individually, neither person exceeds the $3 million threshold. That means the additional tax may not apply at all.
At the same time:
- Each person may still hold up to $2 million in tax-free pension phase
- The remaining balances continue to benefit from concessional tax rates inside super
- The overall effective tax rate across the combined retirement savings can remain remarkably low
“The structure matters enormously,” Mike says. “Two people with $3 million each can end up in a far stronger position than one person holding the entire balance.”
The strategies becoming increasingly important
As the new rules take effect, Mike says the focus is shifting from accumulation alone to structuring wealth more intentionally.
Equalising super balances between spouses
One of the most effective strategies for many couples is balancing super between partners wherever possible.
“A couple with balances of $5 million and $1 million will likely face a very different long-term outcome than a couple with $3 million each,” Mike explains.
Depending on age, contribution history and eligibility, strategies may include:
- Spousal contributions
- Contribution splitting
- Recontribution strategies
- Pension withdrawals and re-contributions
For some couples, taking action years before balances approach the threshold can create substantially better outcomes later.
“The earlier the planning starts, the more flexibility people usually have,” Mike says.
Recontribution strategies and intergenerational planning
Recontribution strategies are also attracting renewed attention – not only because of Division 296, but because of the long-term tax implications for adult children who may eventually inherit super balances.
These strategies involve withdrawing and recontributing super as non-concessional contributions, potentially reducing the taxable component of super over time.
“For many families, this is about more than reducing tax today,” Mike says. “It’s also about reducing unnecessary tax for the next generation.”
In some situations, moving funds toward the lower-balance spouse can deliver dual benefits:
- Reducing Division 296 exposure
- Improving the eventual tax position of beneficiaries
As always, eligibility rules, contribution caps and timing considerations are critical.
A real-world Sunshine Coast example
Mike recently worked with a Sunshine Coast hinterland couple facing exactly this challenge.
One partner had spent decades in the mining industry and built a substantial super balance, while the other had taken significant time away from the workforce to raise children.
The result was a major imbalance between their super accounts – creating potential exposure to Division 296, alongside future tax implications for their adult children.
The couple were able to significantly improve their overall position through a combination of:
- contribution splitting
- spousal contributions
- a targeted recontribution strategy.
“It wasn’t just about reducing tax,” Mike says. “It gave them confidence. They felt clearer about their retirement, clearer about their family’s future, and more in control of what came next.”
What should Australians do now?
Mike’s message is simple: don’t wait until the threshold is already a problem.
“If your super balance is already above $1.5 million – or trending in that direction – now is the time to start understanding your options,” he says.
Importantly, many effective strategies cannot be implemented overnight. Contribution caps, timing rules and age-based eligibility requirements mean proactive planning often creates better outcomes.
And in many cases, the solutions are more straightforward than people expect.
“Sometimes relatively small adjustments to how contributions are structured today can make a significant long-term difference,” Mike says.
Ultimately, Mike believes Division 296 reinforces something financial advisers have always known: strategy matters.
“This isn’t just about a super balance,” he says. “It’s about understanding the full picture – your income, your retirement goals, your family, and what you want your wealth to achieve over time.”
To explore what strategies may be available in your situation, contact your adviser or find an adviser local to you here.
Disclaimer: This article contains general information only and does not constitute personalised financial advice. Individual circumstances vary and the strategies discussed may not be appropriate for everyone. Please speak with a qualified financial adviser before making decisions about your superannuation or financial plan. Wealth Architects holds an Australian Financial Services Licence.