$3 million super cap allows for carry forward of negative years

Exposure draft legislation released around the Government’s proposed $3 million superannuation cap has revealed just how alert advisers and their clients will need to be to the ebb and flow of superannuation balances over a financial year.

Because just as superannuation fund members will be liable for higher tax on balances over $3 million, they will equally be able to carry forward losses in negative investment years.

The exposure draft makes clear that the superannuation tax will be applied separately to personal income tax but that people with have the option of paying out of their superannuation fund or from money held outside of the superannuation system.

The new tax regime is intended to cut in from 1 July 2025 and toe apply from the 2025-26 income year onwards.

The explanatory materials attaching to exposure draft said that the overall tax rate applied to a per centage of future earnings equal to the per centage of an individual’s total superannuation balance above $3 million would be 30%.

“This change is expected to apply to around 80,000 people, or approximately 0.5% of Australians with a superannuation account in the 2025-26 income year,” the explanatory material said.

“This adjustment will apply prospectively and does not impose a limit on the size of superannuation account balances. Individuals with TSBs over $3 million will receive less generous tax concessions on earnings.”.

While pointing to the 30% tax applying to balances over $3 million, the explanatory materials said negative superannuation earnings from balances above $3 million will be carried forward and used to reduce the amount of superannuation earnings subject to Division 296 tax in future income years.