If your super balance is comfortably below $3 million, you can probably relax — the proposed changes to super rules shouldn’t affect you (for now). But if your super is approaching or exceeding that level, the Treasurer’s latest announcement could change how you think about superannuation’s generous tax concessions.

The background: Better Targeted Superannuation Concessions

For some time, the Government has planned to reduce tax concessions for individuals with super balances above $3 million — commonly known as the Division 296 tax.

Under the Better Targeted Superannuation Concessions (BTSC) policy, the revised proposal keeps the intent of limiting tax breaks for very large balances but makes the system simpler, fairer, and more practical.

After industry criticism of the 2023 model, the Government has dropped the most problematic features while keeping the focus on higher-balance fairness.

What’s changing — and why it’s simpler

The original 2023 proposal applied an extra 15% tax on “earnings” from balances above $3 million, including unrealised gains — paper profits on assets such as property or shares that hadn’t been sold. This meant taxpayers could owe tax on value increases they hadn’t actually received in cash.

The reworked version removes unrealised gains entirely, taxing only realised earnings — income and capital gains from sold assets. This aligns the policy with ordinary tax principles and eliminates liquidity concerns for investors holding property or unlisted assets.

A fairer, tiered approach

The updated model introduces a two-tier system for high balances:

• Tier 1 ($3 m – $10 m): Extra 15% tax on earnings within this range (30% total).

• Tier 2 (over $10 m): Extra 25% tax on earnings above $10 m (40% total).

Both thresholds will be indexed annually to inflation — $150,000 steps for the $3 million tier and $500,000 steps for the $10 million tier — to help prevent bracket creep.

The new rules are set to start from 1 July 2026, with first assessments expected in 2027–28. Treasury estimates less than 0.5% of Australians will be affected at the $3 million level and fewer than 0.1% above $10 million.

What this means in practice

Example 1 – Megan
Megan has a $4.5 million super balance split between an SMSF and an APRA fund, earning $300,000 in realised income. The portion above $3 million (33.33%) will attract an extra 15% tax = $15,000 Division 296 tax.

Example 2 – Emma
Emma’s SMSF holds $12.9 million and earns $840,000. She pays 15% on the Tier 1 portion and an extra 10% on the Tier 2 portion — roughly $115,000 in additional tax.

The ATO will calculate each individual’s total super balance across all funds and determine the proportionate earnings subject to the new tax.

Why this is still good news (for most)

For most SMSF members, the changes are a relief. By removing unrealised gains, the Government has reduced valuation complexity and liquidity pressure — especially for those holding property or long-term investments.

However, individuals with balances above $10 million will face higher tax rates of up to 40%, which may prompt strategy reviews around asset allocation and withdrawals.

Remember, legislation has not yet been introduced — so the final details could still change before becoming law.

Low Income Superannuation Tax Offset (LISTO) increase

Alongside the Division 296 update, the Government plans to raise the Low Income Superannuation Tax Offset (LISTO) threshold from $37,000 to $45,000 from 1 July 2027.

The maximum LISTO payment will rise to $810, with Treasury estimating an average increase of $410 for affected workers.

What to do now

• Check your total super balance (TSB) now and estimate where it might be by 2026.

• Seek advice early — strategies such as managing liquidity, reviewing asset allocations, and timing asset sales could make a real difference.

• Stay informed — draft legislation is expected during 2026, and Indigo Financial will keep clients updated through our newsletters.

The revised Division 296 model represents a balanced approach: fewer administrative headaches for most Australians, but tighter limits on concessions for the ultra-wealthy.

If your balance is near or above $3 million, now is the time to plan ahead — not panic.

Contact Indigo Financial on (08) 8212 8585 if you need help with any of your accounting and taxation needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.