$3M Super Cap and SMSF Property Investment: What Property Investors Need to Know

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It’s been two years since the Albanese government first raised the idea of an additional tax on the earnings of multi-million-dollar super balances. After extensive consultation, Treasurer Jim Chalmers recently confirmed exactly what the new tax will look like. It’s been through quite a few changes. Here’s how the latest version shapes up and what it means for SMSF property investment, with the proviso that the legislation has not officially passed yet, so there may still be more details to come.

Before we look specifically at property investors, let’s consider the legislation in general. To put this in perspective, today only around 0.5% of super balances exceed $3 million. Even fewer, just 0.1% (about 8,000 people), have super in excess of $10 million.

From 1 July 2026, investment earnings on super balances over $3 million will be taxed at 30%, up from the current 15%. Earnings relating to the portion of super below $3 million will still be taxed at the current concessional rate of 15% (or nil for balances associated with pension accounts).

The latest version of the new tax introduces a second tier: returns on super balances over $10 million will be taxed at 40%.

One of the biggest changes, which will benefit property investors with balances over $3 million, is that only realised gains will be taxed. This was a key point of contention in the original proposal, which had suggested taxing unrealised gains. Not only would that have gone against the general principles of our tax system, but it would also have created practical challenges.

Investments such as shares can be highly volatile, and unlisted assets can be difficult to value. Funds with significant property holdings could have faced a cash flow crunch if required to pay tax on unrealised gains (paper gains).

Under the latest version of the new tax, both thresholds, $3 million and $10 million will also be indexed to avoid bracket creep. The $3 million threshold will increase in increments of $150,000, and the $10 million threshold increments of $500,000.

What the Super Cap Changes Mean for Property Investors

For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment. But how do these recent changes impact investing in property via your super fund?

The removal of tax on unrealised capital gains is a major plus for super funds investing in property. Property is not a liquid asset by nature, but it generally increases value over time. Under the original proposal, super funds may have been forced to sell property to meet tax obligations, creating cash flow challenges. This is no longer an issue.

The increase in the tax rate from 15% to 30% for investment earnings on super balances over $3 million simply aligns it with corporate tax rates. Whether it’s better to invest in property outside of super now depends on your personal situation. However, it’s worth noting that the 30% rate is the same as the corporate rate on investment properties outside of super, so the difference is minimal.

Protecting Your Property Investments from Higher Super Taxes

Longer term, if your super balance exceeds $10 million, earnings above that threshold will be taxed at 40%. With property, this is possible, as values typically increase over time. However, both thresholds ($3 million and $10 million) will be indexed to CPI, which helps prevent more people from unintentionally entering the higher tax bracket. That said, high-growth properties may appreciate faster than indexation. To avoid the 40% tax, it may be worth considering alternative structures outside super, such as a Property Investor Trust.

It’s important to seek specific advice on the best structure to hold property if investing outside super. Some alternative structures to consider include:

1. Property Investor Trust
2. Discretionary or Unit Trust
3. Company

Overall, super remains a highly tax-friendly way for most Australians to save for retirement. However, if you already have a large balance and plan to purchase a high-growth asset like property (which could place you in the 40% tax bracket), it may be worth exploring alternative structures outside your super fund.

For the majority of Australians with balances below $3 million ($6 million if combined with a partner), adding property to a diversified super fund that remains under these thresholds is still a highly effective strategy.

Protect Your SMSF and Property Investments

If you’re a property investor using super to build long-term wealth, the $3 million cap changes the landscape. Property inside SMSFs remains viable, but higher tax rates on excess earnings and rising property values mean it’s important to plan carefully. Review your strategy, run the numbers, and seek advice to ensure your SMSF continues to support your retirement goals.

To make sure your property investments and SMSF are structured in the most tax-effective and flexible way, contact us at Chan & Naylor. Our team of experts can assess your current structure to ensure it’s efficient and future-proof. Early advice can protect you from unexpected tax or planning issues.

David Naylor, Co-founder, Chan & Naylor

With more than 35 years of experience, David Naylor is a highly skilled authority in property and business tax strategies. He commenced his working life in the banking industry before starting his own accounting business from an office within his parents’ home. He began with a small portfolio of clients consisting of friends and family and grew it into Australia’s fastest- growing property, business, tax-accounting and wealth advisory group.

Specialising in guiding small business owners and investors, David co-authored “Small to Great”, helping thousands of people to unlock their financial potential. He has founded and grown several successful businesses, gaining hands-on expertise in wealth-building and asset protection. David is widely recognised for his ability to harness property investment to drive business growth and ensure long-term financial security.

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