- Published on 15 Oct 2025
- - What is Financial Planning?, Self Managed Superannuation, Superannuation
Government announces major redesign of proposed $3 million super tax
LifeTime Financial Group Summary
The Federal Government has confirmed it will proceed with changes to the proposed tax on superannuation balances above $3 million — but with several major design revisions. These include the introduction of a two-tier tax system, the use of realised rather than unrealised earnings, and a deferral of the start date to 1 July 2026. The adjustments are intended to address fairness concerns raised by the superannuation industry and to provide more time for consultation before the legislation is finalised.
Overview of the announcement
The Government has announced sweeping updates to the proposed Division 296 tax, which will apply to individuals with total super balances exceeding $3 million. The changes follow strong feedback from stakeholders and will take effect from 1 July 2026, a year later than originally planned.
At the same time, the Low Income Super Tax Offset (LISTO) income threshold and payment amount will increase, providing a modest benefit to lower-income Australians saving for retirement.
A new two-tier tax system for large super balances
From 1 July 2026, superannuation earnings will be taxed under a two-tier structure:
- 15% on earnings linked to balances between $3 million and $10 million
- 25% on earnings linked to balances above $10 million
These rates will apply in addition to the standard 15% concessional tax rate paid by super funds on their taxable income.
Indexation to limit bracket creep
Both the $3 million and $10 million thresholds will be indexed to the Consumer Price Index (CPI). Indexation is designed to reduce bracket creep and limit the number of Australians who may be affected as super balances grow over time.
Shift to a ‘realised earnings’ model
A key change is the decision to abandon taxing unrealised capital gains. Instead, the new system will tax realised (taxable) earnings — that is, income actually generated and taxed within the fund.
This aligns the measure more closely with existing income tax principles. The Australian Taxation Office (ATO) will determine each affected member’s share of realised earnings using existing fund reporting or other fair and reasonable methods, with detailed guidance to follow.
How the tax will be calculated
Each financial year, the ATO will assess whether a member’s total super balance (TSB) exceeds $3 million. The ATO will then contact the member’s super funds to determine their share of realised earnings and calculate the Division 296 tax using the two-tier structure.
Members will continue to have the option of paying the tax personally or from their superannuation account.
Further details still to come
The Government is considering additional refinements to ensure fair treatment for defined benefit members and may extend current exemptions for some judicial officers to maintain consistency across jurisdictions.
Legislation to implement these measures will be introduced in 2026, following further consultation with industry participants and key stakeholders.
Why not take the next step and talk to us today
LifeTime Financial Group are specialist (holding appropriate accreditations) financial planners who are ideally positioned to work with you in planning and significant holdings in your Superannuation arrangements.
If you would like to discuss your current position or wider financial planning needs, why not call us today on 03 9596-7733? There is no cost or obligation for our initial conversation/meeting.
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