If your super balance sits comfortably below $3 million, you can probably relax. The government’s proposed changes to super rules are unlikely to affect you for now. However, if your super is approaching that level or is clearly above it, the Treasurer’s latest announcement is important. It could change how you view the generous tax breaks within super.

The government has long planned measures to reduce tax concessions for super balances exceeding $3 million. This proposal is commonly called the Division 296 tax. After industry feedback, the government has reworked its plan. The revised policy, part of the Better Targeted Superannuation Concessions, aims to be simpler and fairer. It retains the core goal of reducing concessions for large balances but removes some problematic features.

Let us break down the changes and what they mean for you.

What Is Changing and Why It Is Simpler

The original 2023 proposal applied an extra 15% tax on “earnings” from balances above $3 million. Its definition of “earnings” included unrealised gains. This meant people could owe tax on the theoretical increase in value of assets, like property or shares, even if they had not sold them. They would face a tax bill without receiving any cash.

The new model fixes this problem. It removes unrealised gains from the calculation entirely. Now, the tax applies only to realised earnings, which means actual income and capital gains from sold assets. This approach is far more practical. It aligns with standard tax rules and eliminates the worry of a tax bill for gains you have not cashed in.

A Fairer and Tiered Approach

The updated rules introduce a two-tier system for high super balances.

Tier 1 ($3m to $10m): An extra 15% tax applies to earnings from this portion, making a total tax rate of 30%.

Tier 2 (over $10m): An extra 25% tax applies to earnings above $10m, for a total rate of 40%.

Both the $3 million and $10 million thresholds will be indexed annually to inflation. This indexation should prevent “bracket creep” over time. Importantly, the start date is now 1 July 2026. 

The first tax assessments will occur in the 2027–28 financial year. The government estimates that fewer than 0.5% of Australians will be affected at the $3 million level. An even smaller group, below 0.1%, will be impacted at the $10 million mark.

What This Means in Reality

Consider these examples from the Treasury to understand how the tax works.

Megan has a $4.5 million super balance. It is split between an SMSF and an APRA fund. She earns $300,000 in realised income within super for the year. The proportion of her balance above $3 million is one-third. Therefore, she will pay $15,000 in additional Division 296 tax. (15% × 33.33% × $300,000).

Why the News Is Still Good for Most People

For many SMSF members, this update is a welcome relief. By excluding unrealised gains, it removes major valuation headaches and liquidity pressures. This is particularly helpful for members who hold property or other unlisted assets. That said, individuals with super balances above $10 million will face a higher overall tax rate, which may reach 40%. This could prompt a rethink of their long-term financial strategies.

However, you should remember that the updated legislation has not yet been introduced to Parliament. Details could change before the proposed rules become law.

What You Should Do Now

What steps can you take? First, check your total super balance now and project where it might be by 2026. 

Second, seek professional advice early. Strategies for managing liquidity, reviewing asset allocations, and timing asset sales could make a significant difference. 

Third, stay informed. Draft legislation is expected in 2026, and we will provide updates through our newsletters.

For any questions you may have relating to Super tax and planning, do not hesitate to speak with our team.