The government has introduced legislation that proposes significant changes to Australia’s superannuation system that could reshape retirement savings for millions of Australians. It targets both ends of the income spectrum, applying higher tax for those with very large super balances while boosting support for low-income earners.
The Bill proposes a tiered Division 296 tax system for superannuation earnings on balances exceeding $3 million, commencing 1 July 2026:
- the current 15% tax rate would remain for earnings on balances up to $3 million;
- earnings on the super portion between $3 million and $10 million would be taxed at an effective 30% rate; and
- earnings on amounts above $10 million would face a 40% effective tax rate.
These thresholds will be indexed to keep pace with inflation. The new tax would apply only to future realised earnings, not unrealised capital gains on unsold assets.
This change would affect fewer than 0.5% of current superannuation members – approximately 80,000 Australians with extremely large super balances. For the vast majority, superannuation tax arrangements would remain unchanged.
The low income superannuation tax offset (LISTO) is proposed to receive a significant boost from 1 July 2027: the eligibility threshold would increase from $37,000 to $45,000; the maximum payment would rise from $500 to $810; and automatic indexation would tie future adjustments to tax thresholds and superannuation guarantee rates.
The government says these changes will benefit over 1.3 million Australians, with around 60% being women. Treasury estimates eligible workers could see an average retirement benefit equivalent to an extra $15,000.
If you have a large superannuation balance, the changes could significantly impact your retirement planning strategy. The proposed tax increases represent a substantial shift in how high-balance superannuation is treated.
For low-income earners, the enhanced LISTO could provide meaningful support. The higher threshold would mean more workers qualify for the offset, while the increased payment amount means better tax outcomes on superannuation contributions.
Remember, this is proposed legislation that must pass Parliament before becoming law. The Bill may be amended during the parliamentary process, and implementation details are still being finalised.
