Proposed Superannuation Changes for High Balances and Low‑Income Earners
The Australian Government has introduced legislation that proposes major changes to the superannuation tax system, potentially reshaping retirement outcomes for millions of Australians. The proposed reforms target both ends of the income spectrum by increasing tax on very large super balances while expanding support for low‑income earners.
Higher tax proposed for large superannuation balances
The Bill introduces a tiered Division 296 tax on superannuation earnings for balances exceeding $3 million, starting from 1 July 2026. Under the proposal:
- superannuation earnings on balances up to $3 million would continue to be taxed at the current 15% rate;
- earnings on the portion of balances between $3 million and $10 million would be taxed at an effective rate of 30%; and
- earnings on amounts above $10 million would face an effective tax rate of 40%.
The government plans to index these thresholds to inflation to prevent bracket creep over time. The new tax would apply only to future realised earnings, not to unrealised capital gains on unsold assets.
According to government estimates, fewer than 0.5% of current superannuation members—around 80,000 Australians—would be affected. For the vast majority of Australians, existing superannuation tax settings would remain unchanged.
Increased support for low‑income super contributors
The legislation also proposes significant enhancements to the Low Income Superannuation Tax Offset (LISTO) from 1 July 2027. The changes would:
- increase the income eligibility threshold from $37,000 to $45,000;
- raise the maximum annual LISTO payment from $500 to $810; and
- introduce automatic indexation, linking future increases to tax thresholds and Superannuation Guarantee rates.
The government estimates these measures would benefit more than 1.3 million Australians, of which approximately 60% of recipients being women. Treasury modelling suggests eligible workers could gain an average boost to their retirement outcomes equivalent to around $15,000 over time.
What these proposed changes mean for you
If you hold a high superannuation balance, the proposed Division 296 tax could significantly affect your long‑term retirement strategy and estate planning. The changes represent a substantial shift in how large super balances are taxed and may require forward planning.
For low‑income earners, the expanded LISTO could provide meaningful retirement support. The higher income threshold would allow more workers to qualify, while the increased payment amount would improve the after‑tax value of super contributions.
Important reminder
These measures are proposed legislation only and must pass Parliament before becoming law. Parliament may amend the Bill during the legislative process, and some implementation details remain subject to change.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
