If your superannuation balance remains comfortably under $3 million, you can likely rest easy—at least for the time being. The anticipated changes to superannuation rules should not adversely impact you—yet. However, suppose you find your balance approaching this significant threshold or exceeding it. In that case, the Treasurer’s recent announcement may compel you to reevaluate the generous tax concessions associated with superannuation.
For some time now, the Government has been contemplating targeted measures to adjust tax concessions for those with superannuation balances exceeding $3 million, commonly referred to as the Division 296 tax. In response to widespread industry feedback, the Government has restructured the proposed tax—part of the Better Targeted Superannuation Concessions (BTSC) policy—endeavouring to make it simpler, fairer, and more practical. Although the core intent of reducing tax concessions for substantial balances remains, the revised version eliminates some of its more challenging aspects.
Let’s delve into what’s changing and what it means for you.
Evolution of the Tax Framework: Simplifying Complexity
Under the original proposal, an additional tax of 15% would have applied to “earnings” derived from superannuation balances above $3 million. A significant drawback, however, lay in the definition of “earnings,” which included unrealised gains—essentially paper gains on assets, such as property or shares, that had not yet been sold. This could have resulted in individuals owing taxes on value increases that had not been converted to actual cash.
The restructured model has wisely removed unrealised gains from consideration altogether, focusing solely on realised earnings—actual income and capital gains when assets are indeed sold. This modification aligns the system with standard tax rules, alleviating concerns about funding tax obligations on unsold assets.
A Fairer, Tiered Tax Structure
The new framework introduces a two-tier system for high balances, outlined as follows:
- Tier 1 ($3 million – $10 million): An additional 15% tax on earnings from this portion, resulting in a cumulative rate of 30%.
- Tier 2 (over $10 million): An extra 25% tax on earnings exceeding $10 million, leading to an overall rate of 40%.
Both tiers will be indexed annually for inflation—steps of $150,000 for the $3 million tier and $500,000 for the $10 million tier—effectively safeguarding against “bracket creep” over time. It is also noteworthy that the commencement date for these changes has been postponed to 1 July 2026, with the first assessments anticipated in the 2027-28 financial year. The Government estimates that fewer than 0.5% of Australians will be impacted at the $3 million threshold, with an even smaller proportion affected at the $10 million level.
Practical Implications of the New Tax Structure
To clarify these changes, let’s consider a couple of illustrative examples from Treasury.
Imagine Megan, who maintains a superannuation balance of $4.5 million, divided between an SMSF and an APRA fund. Suppose she realises $300,000 in income within the super system for the year. In that case, her balance exceeding $3 million represents one-third of her total balance. Consequently, she will incur an additional Division 296 tax of $15,000 (calculated as 15% × 33.33% × $300,000).
Now let’s look at Emma, who holds $12.9 million in her SMSF and $840,000 in realised earnings. She will pay 15% on her Tier 1 earnings and an additional 10% on her Tier 2 earnings, resulting in an extra tax burden of approximately $115,000. These examples clearly illustrate the progressive nature of the taxation system, with the ATO responsible for calculating each individual’s total superannuation balance across all funds to determine the proportional amount of earnings subject to tax.
Positive Outcomes for Most
For many members of self-managed superannuation funds (SMSFs), this update is likely to provide a sense of relief. By excluding unrealised gains from consideration, two significant challenges—valuation complexities and liquidity pressures—are alleviated, especially for those who hold property or unlisted assets. However, it is essential to recognise that individuals with superannuation balances exceeding $10 million will encounter a higher overall tax rate (up to 40%), necessitating a reevaluation of long-term financial strategies.
That said, please keep in mind that the legislative framework related to this measure has not yet been formally introduced to Parliament, and there may be further adjustments before it becomes law.
Enhancements to the Low-Income Superannuation Tax Offset
In conjunction with the implementation of the revised Division 296 tax, the Government has also declared an increase in the Low-Income Superannuation Tax Offset (LISTO) from $37,000 to $45,000, effective from 1 July 2027. In addition, the maximum payment will rise to $810, with Treasury projecting an average increase of $410 in the LISTO payment for eligible workers.
Recommended Next Steps
In light of these significant updates, we encourage you to:
- Review your total superannuation balance now and project potential changes leading up to 2026.
- Seek expert financial advice promptly—strategies such as liquidity management, asset allocation reviews, and careful timing of asset sales could greatly influence your overall tax burden and financial strategy.
As awareness of these developments grows, our goal is to empower you with the knowledge necessary to navigate this evolving landscape with confidence and foresight.