Part 2: The Proposed $3 Million Super Tax
What It Means for Australian Expats
Following a decisive victory in the May 2025 federal election, Prime Minister Anthony Albanese’s Labor government has confirmed plans to implement the controversial Division 296 tax. This new measure introduces an additional 15% tax on earnings derived from superannuation balances exceeding $3 million, effective from 1 July 2025.
For Australian expats, this development has wide-reaching implications. The tax applies irrespective of residency status, meaning Australians living abroad with significant superannuation balances must assess how this could affect their long-term retirement strategy.
Key features of the proposal include:
- Taxing unrealised gains
- Non-indexed threshold
- No refunds for negative returns
- Individual-level assessments
Why Australian Expats Should Care
For Australians living abroad, the proposal raises several important cross-border planning considerations.
- Residency Doesn’t Exempt You
The $3 million threshold is based on your total Australian superannuation balance, regardless of whether you are an Australian tax resident. As long as you hold super, the test applies to you. - Currency Movements Can Inflate Your Exposure
For expats with superannuation funds that hold offshore assets, currency fluctuations may unintentionally push your balance above the threshold. A falling Australian dollar, for example, can inflate the reported value of foreign assets, resulting in a higher deemed earning and therefore a higher tax. - Risk of Double Taxation
Many expats reside in countries that do not recognise Australian super as tax-exempt. For example, in the United States, superannuation earnings may already be taxed under US rules. If Division 296 is introduced, expats in these jurisdictions may face taxation in both Australia and their country of residence without access to a foreign tax credit, leading to potential double taxation. - Increased Compliance Pressure for SMSFs
Expats managing self-managed superannuation funds (SMSFs) face the added challenge of securing accurate annual valuations for illiquid assets like property or private equity. The change would increase this pressure, with more frequent valuation requirements and tighter administrative timelines. - Monitor Legislative Developments:
Stay informed about the progress of the legislation and any amendments that may arise during parliamentary debates.
Division 296 Tax Strategies to Consider
- Super Splitting Between Spouses
Where possible, directing concessional contributions to a spouse with a lower balance can help manage individual exposure to the $3 million cap and keep funds within the tax-preferred superannuation environment. - Capping Future Super Contributions
For high-income expats still contributing to super while abroad, now is the time to evaluate whether those contributions make sense. Redirecting new savings into more flexible vehicles may improve tax efficiency and accessibility. Such as non-TRAP assets. - Asset Reallocation Across Structures
Consider holding high-growth or volatile assets outside of super, for example, in a family trust or company and retaining income-generating or conservative investments within super where the existing concessional rates still apply. - Exploring Alternative Tax Structures
Structures like investment bonds or private companies can offer flat tax rates comparable to the proposed Division 296 rate, along with other estate planning or accessibility advantages. Careful planning is essential to weigh up costs, control, and long-term flexibility.
What Should Expats Do Now?
2025 offers a key window for Australian expats to review their superannuation and overall financial structure.
We recommend expats take the following steps:
- Assess your current total superannuation balance and project future growth
- Review how your super is invested and the impact of foreign currency exposure
- Evaluate the tax treatment of your super under local laws in your country of residence
- Revisit your contribution and asset allocation strategies
- Monitor legislative updates as the new rules pass through parliament
Final Thoughts on what the $3 Million Super Tax for Australian Expats
The reintroduction of Division 296 is one of the most significant changes to Australia’s superannuation system in decades. For expats, the complexity is compounded by cross-border tax rules, currency exposure, and limited access to local tax relief. While the tax will initially affect a relatively small number of individuals, the lack of indexation ensures that its reach will grow steadily over time.
At Atlas Wealth Management, we specialise in helping Australian expats manage their financial lives across borders. Our team can help you understand your exposure, weigh strategic options, and implement solutions that safeguard your long-term retirement goals.
Check out Part 1: Deep Dive into the Labor Government’s Brand-New Super Tax (Division 296 Tax)
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At Atlas Wealth, our team of experienced financial advisors can provide tailored strategies to help you stay on track with your long-term investment goals. Contact us today to schedule a consultation and take the next step toward securing your financial future.
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