Federal Treasurer Jim Chalmers recently released a substantially revised version of the government’s proposed Super Tax legislation, on the back of sustained and vocal criticism from the opposition and those to be affected.
Formally known as the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill, the exposure draft introduces structural changes to the tax, including new thresholds, changes to how earnings are calculated, indexation adjustments and a delayed start date.
The government says the measure is aimed at making super tax concessions fairer and more sustainable and is intended to take effect from the 2026–27 income year, so there’s still a few months for those affected to adjust their balances accordingly, if they feel so inclined.
In this instance, the term “Super Tax” refers to a proposed extra tax on earnings in superannuation accounts that exceed certain balance thresholds. Technically, it is a new application of Division 296 of the Income Tax Assessment Act, targeting individuals with large superannuation balances.
Under current rules, most superannuation earnings are taxed at up to 15% in the accumulation phase and potentially 0% in retirement phase. The new tax would reduce the benefit of those concessions once accounts exceed defined thresholds.
According to industry estimates, only a small proportion of Australians will be affected. The government says it’s as little as 0.5% in the first year, however the number will grow gradually over time without indexation.
The revised draft introduces two balance thresholds instead of one. Accounts holding up to $3 million continue to receive existing concessional treatment, so there’s no change there.
For balances between $3 million and $10 million, an additional tax applies to earnings, lifting the total effective tax on that slice up to 30% – a 15% base plus 15% extra. And for balances above $10 million, the total possible rate will climb as high as 40% on attributed earnings.
Previously, some drafts of the legislation proposed only a single threshold at $3 million, which was fiercely contested as being too harsh – and the latest draft shows the government has listened.
The draft also puts forward the removal of unrealised gains from the tax base. Earlier versions had proposed measuring tax using changes in the total super balance, which would have captured assets that hadn’t been sold, including capital gains that were not realised. Critics argued this was unprecedented in tax law.
Under the new draft, super funds instead calculate realised taxable earnings for members above the thresholds and attribute a share to each member, based on fund-level reporting.
Both the $3 million and $10 million thresholds are also now tied to the inflation via the Consumer Price Index (CPI), which is designed to reduce bracket creep over time. This is a change from earlier proposals that held the $3 million cap fixed.
The new draft acknowledges that different super funds calculate earnings in different ways. APRA-regulated funds can attribute earnings on a “fair and reasonable” basis using pooled data and agreed principles.
In contrast, self-managed super funds must use more prescriptive methods to allocate earnings, which are generally based on each member’s proportionate interest over the year. This is expected to limit trustees’ ability to manage the timing of transactions to reduce tax burdens.
The revised draft also sets a new bar as it relates to transactional integrity. To prevent “gaming” of the system by timing withdrawals or transfers to avoid tax thresholds, the legislation proposes applying the Division 296 tax on whichever is higher of a member’s super balance at the start or end of the financial year. There are also specific rules to ensure assessment in the event of a member’s death.
According to SuperGuide, the Division 296 tax applies to the taxable super earnings of individuals whose total super balance exceeds the threshold, based on the greater of the start and end-of-year balance.
For example, an individual with a $4.5 million balance and $150,000 in earnings might pay an additional tax on only the portion of earnings proportional to the balance above $3 million.
For now, the legislation remains in draft form, with implementation dependent on Parliament’s passage of the Bill. The government has signalled its intention to introduce the legislation promptly so it can take effect from the 2026–27 income year.
Industry advisers and stakeholders say individuals nearing the thresholds will need to seek professional financial advice to understand how the proposed changes could affect their retirement savings.
Proudly Australian owned and operated