Can I withdraw from my super to avoid the proposed $3m tax?

I’m confused about the proposed 15 per cent tax on unrealised gains in super for balances over $3 million per member. Given Labor’s strong election win, it seems this tax is going ahead.

You’ve said June 30, 2026 is the key date, and the aim is to be under $3 million per member by then. But a legal friend who’s read the draft law says if my balance goes over $3 million at any time after that – even if I withdraw funds to get back under before June 30, 2027 – I could still be caught. Can you clarify this? It’s incredibly complex.

The proposed super tax will likely cut into the balances of top earners.Credit: Simon Letch

Superannuation expert Meg Heffron explains that the challenge lies in how the proposed tax is calculated – it’s a calculation based on three parts: 15 per cent × earnings × a proportion.

The proportion refers to how much of your super balance at the end of the year exceeds $3 million. For someone with $4 million, that’s 25 per cent – because $1 million over $3 million is 25 per cent of $4 million. If your balance is $3 million or less, the proportion is 0 per cent.

This figure is based solely on your balance at June 30 – it doesn’t matter what happened during the year. Your super could be $10 million on June 29, but if it’s down to $3 million the next day, there’s no tax payable. That is for both 2025/26 (the first year of the tax) and any year after that.

Take someone who’s super grew from $4 million to $4.2 million during the year, and who withdrew $500,000 and did not have any contributions going into their account. Their earnings for Division 296 tax would be $4.2m + $0.5m – $4.0m = $0.7 million.

This is where the “adding back” step becomes important – it prevents people artificially reducing their earnings by making last-minute withdrawals just before June 30. In this case, because they ended the year above the $3 million threshold, the Division 296 tax kicks in.

But if they’d withdrawn $1.7 million instead and finished the year with exactly $3 million, the earnings calculation is unchanged – still $0.7 million – yet the proportion of their super over $3 million is now zero. Result: no tax.

If they’d miscalculated and withdrawn only $1.65 million, leaving a year-end balance of $3.05 million, they’d pay a small amount of tax. That’s because $3.05 million is 1.64 per cent over the $3 million threshold. The tax payable would be 15 per cent × $0.7m × 1.64 per cent = $1722.

Bottom line – if your balance is $3 million or less at year-end, none of this matters. You will not be liable for the tax.

We are homeowners with combined assets of $470,000. We’ll receive $1000 per fortnight from the UK State Pension and have no other income. We hear this might reduce our Australian age pension by $500 per fortnight. Is that correct, and how does Centrelink assess the UK pension?

The UK State Pension is counted as income under the income test for the age pension. Centrelink assesses you under both the assets test and the income test, and applies the one that gives you the lower payment.

In your case, the income test will apply, and assuming your $470,000 of assessable assets are financial investments subject to deeming, your age pension should be around $627.38 each a fortnight.

I’m 48 and trying to rebuild after life took an unexpected turn. Reading your book has given me the confidence to take control of my financial future, and now I want to do more to strengthen my retirement. I have around $360,000 in super and a mortgage of about $380,000. I work full-time, and I am considering buying a property through a self-managed super fund based on the advice I received from a firm who rang me. If you were in my shoes, would you go down that path?

It appears you’ve been targeted by property spruikers who are cold-calling unsuspecting Australians relentlessly. They aim to persuade you to let them build you a house – typically with a hefty markup added on top.

Property investing gives you great leverage and a home to call your own, while shares offer a lower entry point, diversification, and greater liquidity.Credit: Bethany Rae

In my experience, shares deliver far better long-term returns than residential investment property. And in any case, with property prices now rarely under $800,000, I don’t believe you have the resources to take on the kind of debt that would require.

A smarter strategy would be to salary sacrifice to super to the maximum allowed. Aim to have enough in super to pay off your home by the time you reach pension age.

I have a substantial share portfolio that I intend to leave to my son. For capital gains tax (CGT) purposes, will his cost base be what I originally paid for the shares or their market value at the time of my death?

If you acquired the shares on or after September 20, 1985, your son inherits your original cost base. This means he is considered to have acquired the shares at the same cost and on the same date as you did.

If you acquired the shares before September 20, 1985, they are considered pre-CGT assets. In this case, your son’s cost base will be the market value of the shares on the date of your death.

It’s important to note that if your son sells the shares, the capital gain or loss will be calculated based on this inherited cost base. Given the complexities involved, especially if the shares have appreciated significantly, it may be beneficial to consult a tax professional.

In some cases, it might be more advantageous for you to sell the shares yourself and gift the proceeds, potentially minimising the CGT implications for your son.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• 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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