The Federal Government has now passed legislation introducing significant changes to the taxation of superannuation, particularly for individuals with higher balances. Known as the Division 296 reforms, these changes are designed to better target tax concessions while maintaining the integrity of Australia’s retirement system.

New tax on higher super balances

From 1 July 2026, additional tax will apply to earnings on super balances above certain thresholds:

• $3 million to $10 million
  Additional 15% tax on earnings (total effective rate of 30%)
• Above $10 million
  Additional 25% tax on earnings (total effective rate of 40%)

Importantly, the tax only applies to the portion of your balance above these thresholds, not your entire super balance.

The thresholds will also be indexed over time, helping prevent more individuals being captured purely due to inflation.

How the tax works

The calculation is based on your Total Superannuation Balance (TSB) and applies a proportional method to determine how much of your earnings are subject to the additional tax.

Key points:

• Applies to realised earnings only (such as interest, dividends, rent and realised capital gains)
• From 2027–28, the calculation uses the higher of your opening or closing balance to limit avoidance strategies

While more refined than earlier proposals, the methodology is still complex and may produce unintended outcomes in certain scenarios.

One-off planning opportunity

For the first year (2026–27), a transitional rule applies:

• Your position is assessed based solely on your balance at 30 June 2027

This creates a one-off opportunity to review and potentially adjust your superannuation position before that date.

Impact on SMSFs

Self-managed super funds are likely to feel the greatest impact:

• Potential requirement for annual actuarial certification
• Option to reset asset cost bases to market value at 30 June 2026 (must be applied across all assets)
• Increased administrative complexity and compliance obligations

These changes may require more active management and ongoing advice.

Estate planning considerations

The new rules may also affect estate planning:

• Division 296 tax can apply in the year of death (after the transitional year)
• Death benefits may push balances above thresholds unexpectedly
• Executors could face tax liabilities after benefits have been paid out

This makes it important to review existing estate and superannuation arrangements.

Low-income earners benefit from changes

From 1 July 2027, there are also positive updates:

• The Low Income Super Tax Offset (LISTO) threshold increases to $45,000
• The maximum offset increases to $810

These changes aim to ensure lower-income earners receive a meaningful tax benefit on super contributions.

What should you do now?

With the legislation now passed, it’s important to take a proactive approach:

• Review your current super balance and structure
• Consider long-term strategies and potential restructuring
• Revisit estate planning arrangements
• Seek tailored advice before making any changes

This article is general in nature and does not constitute financial or tax advice. Please contact our office if you would like assistance reviewing your position.