Super Tax Shake-Up: Big Balances Beware
The Government has reworked the proposed Division 296 tax — removing unrealised gains and introducing a two-tier system. We break down what's changed and what it means for you.
If your super balance is comfortably below $3 million, you can probably relax — the proposed changes to the super rules shouldn't adversely affect you (yet). But if your super is nudging that level, or if you're clearly over, the Treasurer's latest announcement could change how you think about super's generous tax breaks.
For some time now the Government has been planning to introduce targeted measures to reduce tax concessions for those with superannuation balances over $3 million. This has commonly been referred to as the Division 296 tax.
However, the Government has reworked the proposed new tax — attempting to make it simpler, fairer, and more practical. After a wave of industry criticism, the revised version keeps the broad policy intent but removes some of the more problematic features.
What's Changing — and Why It's Simpler
The original 2023 proposal aimed to apply an extra 15% tax on "earnings" from super balances above $3 million. The big flaw? "Earnings" included unrealised gains — paper profits on assets like property or shares that hadn't been sold.
The reworked model drops unrealised gains from the equation entirely, taxing only realised earnings — actual income and capital gains when assets are sold. No more worrying about funding a tax bill on assets you haven't sold.
A Fairer, Tiered Approach
The new rules introduce a two-tier system for high balances:
- Tier 1 ($3m–$10m): Extra 15% tax on earnings from this portion (making a total rate of 30%).
- Tier 2 (over $10m): Extra 25% tax on earnings above $10m (for a total rate of 40%).
Both thresholds will be indexed annually to inflation. The start date has been pushed back to 1 July 2026, with the first assessments expected in 2027–28.
Low Income Superannuation Tax Offset
The Government has also announced it will increase the Low Income Superannuation Tax Offset (LISTO) from $37,000 to $45,000 from 1 July 2027. The maximum payment will also increase to $810.
What to Do Now
- Check your total super balance (TSB) now and project where it may be by 2026.
- Seek advice early — strategies like managing liquidity, reviewing asset allocations, and timing asset sales could make a real difference.
- Stay informed — draft legislation is expected in 2026.
- Revised Division 296 taxes only realised earnings — unrealised gains removed
- Two-tier system: 30% total tax for $3m–$10m; 40% for above $10m
- LISTO threshold increases to $45,000 from 1 July 2027
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