Your questions on Labor’s $3M super tax, answered —Noel Whittaker
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Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Labor's attempt to tax unrealised capital gains in super has resulted in an avalanche of emails. Today, we'll look at some of the most asked questions.
Question: Regarding the proposed extra tax on earnings for super balances over $3 million, I agree that taxing unrealised capital gains is a major concern and a complete shift from established principles.
I thought any tax paid on unrealised gains would at least offset CGT when the asset is sold. But your article says otherwise: ‘When you do eventually sell those assets and realise a profit, you will pay capital gains tax. And no, there is no credit for the tax you have already paid on the unrealised gains…’
Is that really correct? Surely there must be either a credit for tax already paid, or at least a cost base adjustment for the amount taxed.
Answer: You need to keep in mind that the tax on unrealised capital gains is calculated by taking the difference between the opening and closing values, adjusted for withdrawals and contributions for the financial year ending 30 June 2026. This is simply a method of calculation.
It does not alter your cost base for capital gains tax purposes. In other words, when assets in your fund are eventually sold, normal CGT rules will still apply. Taxation of specific assets within your fund is an entirely separate issue from the government’s decision to levy a tax on the difference in valuations.
The proposed tax on super balances over $3 million applies to unrealised gains without providing a credit or cost base adjustment for capital gains tax when assets are eventually sold. Image source: Seniors Discount Club
Question: I understand the Transfer Balance Cap (TBC) is $1.9 million for 2024–25, increasing to $2 million from 1 July 2025. Amounts transferred above this cap are taxed at 15%. Given this, individuals with $3 million in the accumulation phase already face a 15% tax on earnings.
If the government's proposed legislation passes, will it impose an additional 15% tax on earnings above $3 million, effectively bringing the tax rate to 30%? Or will the new tax apply only to the portion of the super balance exceeding $3 million that remains in accumulation? Additionally, how does this proposed tax interact with the existing lifetime TBC?
Answer: The transfer balance cap is simply a mechanism to limit how much can be transferred into the pension phase within superannuation. It’s unaffected by the proposed changes. An example may help: suppose you have $3.6 million in super, $2 million in pension phase and $1.6 million in accumulation, at 30 June 2026. If your total balance then rises to $4 million, the increase is $400,000.
However, only $1 million is above the $3 million threshold, so just 25% of the gain is taxable. That means the proposed tax of 15% would apply to $100,000, resulting in a $15,000 tax bill.
The proposed 15% tax on superannuation earnings above $3 million would apply only to the portion of the total balance exceeding $3 million, regardless of whether it's in accumulation or pension phase, and is separate from the Transfer Balance Cap, which remains unchanged. Image source: Seniors Discount Club
Question: I'm concerned about the proposal to tax unrealised capital gains in my super. If the fund holds franked shares, my understanding is that franking credits are refunded because tax has already been paid at the company level. If so, how can a franking refund be included in the year-end balance as a ‘contribution’? Shouldn’t it be excluded from the new tax calculation?
Answer: That’s not quite how franking works. When a fund receives a franked dividend, the statement shows the cash dividend and the franking credit. The credit isn’t a contribution—it’s a tax offset that forms part of taxable income. It’s used to reduce tax payable, and any excess is refunded. These amounts either boost the fund’s bank balance or reduce its tax, improving its net position. It’s not double taxation—it’s what prevents it.
Read More: Is your super safe? Labor’s new tax could be just the beginning— by Noel Whittaker
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
