$3m super tax cap – politics and reality | Australian Markets

The degree to which the Government’s $3 million superannuation tax cap coverage has created differing views within the sector has been revealed by the differing approaches of the Financial Services Council (FSC) and the Association of Superannuation Funds of Australia (ASFA).

While the FSC on Friday launched a crucial evaluation of the affect of the proposed new regime building on 4 totally different eventualities and arguing that it’ll have a vital affect on youthful Australians, the ASFA printed case-studies weighing the affect of the modifications.

The FSC based mostly its modelling on the acknowledged positions of the Government and the Greens and printed the next:

• Labor coverage: More than 500,000 Australians at the moment within the workforce impacted by the time they attain retirement
• Greens coverage: More than 200,000 Australians at the moment within the workforce impacted by the time they attain retirement
• Negotiated final result ($3 million, listed): 64,000 Australians at the moment within the workforce impacted by the time they attain retirement
• Negotiated final result ($2 million, unindexed): 1.8 million Australians at the moment within the workforce impacted by the time they attain retirement.

FSC chief government, Blake Briggs mentioned the Government would set the tone for how it intends to manipulate in its second time period “by deciding whether to listen to broad consumer, industry and economists’ feedback on how the current design of its superannuation tax is unfair to future generations of Australians”.

“The superannuation industry recognises the Government has the capacity to force the new tax through the Parliament with the support of the Greens but encourages the two parties to take a more constructive and consultative approach,” Briggs mentioned.

“The Financial Services Council encourages the Government to consult on options that would not unfairly target future generations of Australian superannuation consumers and undermine confidence in our retirement system by introducing a new, contentious tax on unrealised capital gains.”

For its half, ASFA printed the next case examine examples:

Joan, a retiree with account-based pensions 

In the 2025–26 income yr Joan acquired benefit funds of $250,000 mixed from her two pension accounts and made a $300,000 downsizer contribution. On 30 June 2025 Joan’s Total Superannuation Balance (TSB) was $3.7 million and $4.1 million on 30 June 2026.

Joan’s adjusted TSB on the finish of the yr is calculated to be $4.05 million by including her complete withdrawals of $250,000 and deducting her complete contributions of $300,000 from her 2025–26 TSB of $4.1 million. Her superannuation earnings for the yr are $350,000 (the distinction between $4.05 million and $3.7 million).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $4.1 million and then dividing it by $4.1 million, leading to a share of earnings attributable to the steadiness over $3 million of 26.83 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $350,000 by 26.83 per cent, which is $93,905. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $14,085.75. This is a comparatively small proportion – roughly 4% – of the general superannuation earnings of $350,000.

Jill, not at the moment working, aged 55 

On 30 June 2025 Jill’s Total Superannuation Balance (TSB) was $3.0 million and $3.1 million on 30 June 2026.

Her superannuation earnings for the yr are $100,000 (the distinction between $3.1 million and $3.0 million).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $3.1 million and then dividing it by $3.1 million, leading to a share of earnings attributable to the steadiness over $3 million of 3.23 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $100,000 by 3.236 per cent, which is $3,230. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $485.

John, an worker who has not retired 

In the 2025–26 income yr John had complete employer contributions totalling $25,000 after deduction of the 15 per cent contribution tax. On 30 June 2025 John’s Total Superannuation Balance (TSB) was $3.2 million and $3.4 million on 30 June 2026.

John’s adjusted TSB on the finish of the yr is calculated to be $3.375 million by deducting his complete contributions of $25,000 from his 30 June 2026 TSB of $3.4 million. His superannuation earnings for the yr are $175,000 (the distinction between $3.375 million and $3.2 million).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $3.4 million and then dividing it by $3.4 million, leading to a share of earnings attributable to the steadiness over $3 million of 11.76 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $175,000 by 11.76 per cent, which is $19,705. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $2,956. This is a comparatively small proportion – much less than 2% – of the general superannuation earnings of $175,000.

Harry, self employed and not retired 

On 30 June 2025 Harry’s Total Superannuation Balance (TSB) was $5 million and $5.5 million on 30 June 2026.

Harry made no contributions and had no withdrawals from his super, so the superannuation earnings for the aim of the tax are $500,000, the distinction between the 2 figures.

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $5.5 million and then dividing it by $5.5 million, leading to a share of earnings attributable to the steadiness over $3 million of 45.45 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $500,000 by 45.45 per cent, which is $227,250. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $34,088.

Fred the retired farmer

Fred has retired from farming. His youngsters proceed the farming business, paying rent to the Self-Managed Super Fund (SMSF) which holds the property as an investment asset.

Fred’s account within the SMSF has an investment portfolio represented by the $3 million worth of the farm, along with shares and bank deposits. His complete superannuation steadiness as at 30 June 2025 is $3.8 million. The fund receives rent in 2025–26 at a yield of 4 per cent on the opening worth of the land, which equates to $120,000. The SMSF is required to charge a business rent for the farming land. Rent is a set quantity and doesn’t range with the profitability (up or down) of the farming business.

Interest and dividends quantity to $60,000 a yr. Fred attracts down on the minimal required fee for his age (70), so his benefit cost is $190,000 in 2025–26. Even within the absence of any Division 296 tax the fund must have entry to money to pay the minimal required drawdown.

At 30 June 2026 the worth of his curiosity within the farm has elevated by 10 per cent to $3.3 million. The complete worth of his curiosity within the SMSF is $4.1 million.

Fred’s adjusted TSB on the finish of the yr is calculated to be $4.29 million by including his complete withdrawals of $190,000. His superannuation earnings for the yr are $449,000 (the distinction between $4.29 million and $3.8 million).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $4.1 million and then dividing it by $4.1 million, leading to a share of earnings attributable to the steadiness over $3 million of 26.83 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $449,000 by 26.83 per cent, which is $120,466. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $18,070. This is roughly 4% of the general superannuation earnings of $449,000 and is a little much less than 10 per cent of the in any other case tax-free cost he acquired from superannuation.

Pedro, retired male MP 

Pedro retired from Parliament in May 2025 after a few years of service, together with as a Minister and Shadow Minister. Due to his date of entry to Parliament he qualifies for a outlined benefit pension which he began to obtain from May 2025. He has knowledgeable the fund trustee that he has a partner. He is aged 55 as at 30 June 2025.

In the 2025–26 income yr Pedro acquired benefit funds of $250,000.

The trustee of the fund has used the Family Law valuation technique to find out a Total Superannuation Balance (TSB) of $5,985,450 on 30 June 2025 and a closing steadiness of $6,070,560 as at 30 June 2026. The closing steadiness displays a decrease valuation issue due to the member being one yr older however there may be additionally an increase within the benefit paid, which for the aim of this illustration is listed by growth in average earnings of 3.5 per cent.

Pedro’s adjusted TSB on the finish of the yr is calculated to be $6,320,560 by including his complete withdrawals of $250,000. His calculated superannuation earnings for the yr are $335,110 (the distinction between $6,320,560 and $5,985,450).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $6,070,560 and then dividing it by $6,070,560, leading to a share of earnings attributable to the steadiness over $3 million of 50.58 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $335,110 by 50.58 per cent, which is $169,498. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $25,425 from $335,110 in earnings.

Patricia, retired feminine MP

Patricia additionally retired from Parliament in May 2025 after a few years of service, together with as a Minister, Shadow Minister and Committee Chair. Due to her date of entry to Parliament she qualifies for a outlined benefit pension which she began to obtain from May 2025. She has knowledgeable the fund trustee that she has a same-sex partner. She is aged 55 at 30 June 2025.In the 2025–26 income yr Patricia acquired benefit funds of $250,000.

The trustee of the fund has used the Family Law valuation technique to find out a Total Superannuation Balance (TSB) of $6,076,075 on 30 June 2025 and a closing steadiness of $6,288,737 as at 30 June 2026. The closing steadiness displays each a decrease valuation issue due to the member being one yr older and additionally an increase within the benefit paid (to $258,750), which for the aim of this illustration is listed by growth in average earnings of 3.5 per cent.

The Family Law valuations use gender-based elements, reflecting longer life expectancy for girls. A better valuation additionally applies when there may be a partner, as a result of of the reversionary pension paid on the death of the first recipient. The valuation elements assume a partner is of the alternative gender. It can also be not clear whether or not the elements apply to a individual based mostly on their gender at beginning or the gender they at the moment establish with.

Patricia’s adjusted TSB on the finish of the yr is calculated to be $6,538,737 by including her complete withdrawals of $250,000 to the closing steadiness. Her calculated superannuation earnings for the yr are $462,562 (the distinction between $6,538,737 and $6,076,075).

The share of taxable earnings over $3 million is calculated by subtracting $3 million from $6,288,737 and then dividing it by $6,288,737, leading to a share of earnings attributable to the steadiness over $3 million of 52.29 per cent.

The Division 296 tax quantity is calculated by first multiplying the superannuation earnings of $462,562 by 52.29 per cent, which is $241,873. That quantity is then multiplied by the 15 per cent tax fee, resulting in a Division 296 tax quantity of $36,281 – round 14 per cent of the pension acquired.

The Division 296 tax payable by Patricia is about 45 per cent more than the tax payable by Pedro, though they obtain the identical pension cost. This is due to the use of gender-based valuation elements. The calculated investment earnings are larger and a better quantity of the account steadiness is over $3 million. In submissions on the valuation strategies ASFA has advocated for a similar valuation elements to use to males and females for each the first and reversionary beneficiaries.