Options for avoiding the incoming $3m super tax

For years, we have been encouraged to build super in order to self-fund our retirement. Key to this has been the standardised low tax rate of 15 per cent.

Moves to apply a two-tiered tax rate, by increasing the tax rate to 30 per cent on balances over $3 million, has shaken that unwavering confidence in super as the retirement investment option of choice.

Many people set to be impacted are seeking ways to safeguard their earnings and limit their exposure to higher taxes.

The effectiveness and appeal of options for doing so will differ depending on:

• Whether you are already retired.
• Whether your super balance is already over $3 million.
• Your personal circumstances, goals and values.

Minimise valuation movements

Under the plan, super assets would be valued as of 30 June each year to determine their tax liabilities. Avoiding the tax means keeping your balance below $3 million on that date.

Doing so could involve:

• Reducing holdings of volatile assets: to minimise the chances of sudden upward swings.
• Reallocating assets: limiting capital gains by favouring income-generating assets over capital gains (e.g. property).
• Selling assets where unrealised gains may be higher on paper than achievable in practice.

Divest funds

For retirees, now may be the time to withdraw funds, particularly if such a move was already on your radar anyway.

That could involve gifting money to adult children or grandchildren (such as for a property deposit or towards their education) or making contributions into their super.

Alternatively, the money could be used for your own purposes – like reinvesting it to launch a new business venture (with the aim of deriving a separate source of revenue), extended travel or home renovations.

Restructure super

Another option could be to restructure your approach to super, which may be especially pertinent for self-managed super fund (SMSF) trustees.

For example, members of a family SMSF could demerge their super – splitting assets across multiple funds so that each maintains a super balance below the $3 million threshold.

Elsewhere, you could divert planned contributions from your own into your spouse’s super if they have a lower balance – grow theirs faster, keep yours below the threshold AND enjoy a tax benefit in the process.

Explore alternative structures

With their confidence in super shaken, some people have begun exploring alternative investment structures.

Other tax-friendly investment vehicles include a family trust or investment company. Each have their own benefits as well as establishment and ongoing costs to factor in.

Alternatively, you could take a second look at holding investments personally (in your or your partner’s name), including property, bonds or collectables.

Be patient

Bear in mind that this change has not yet been legislated. Yes, it looks likely, but nothing is official until it is official. As such, the best action may be to take no action until we know more. This enables you to avoid panic sales and knee-jerk reactions, and instead move forward with more informed, considered decisions.

For instance, the final legislation may wind up with the threshold being indexed, limiting the scope for bracket creep. It may also forgo the inclusion of unrealised gains – meaning if you sell now, you actually increase your assessable earnings by realising those returns.

Even if the change is introduced and subsequently backdated to 1 July 2025, the first valuation to determine taxable gains wouldn’t be until 30 June 2026, meaning you still have a whole year to make changes if needed.

And, at the end of the day, even a 30 per cent tax rate may still be more favourable than your standard income tax rate.

Be sure to seek professional advice before taking any action, to ensure that you have considered all options that may affect you – both now and in future. Because changing your entire investment strategy to avoid a single tax impost may involve considerable costs, upheaval, stress and opportunity costs for little if any overall gain.

Helen Baker is a financial adviser and author of the book “Money For Life: How to build financial security from firm foundations”.