$3m super tax changes...

The superannuation industry has broadly welcomed major changes to the proposed $3 million super tax legislation.

Treasurer Jim Chalmers announced amendments to the Better Targeted Superannuation Concessions bill, most notably scrapping the tax on unrealised capital gains and introducing indexation to the $3 million threshold.

Under the revised model, the Division 296 tax will apply only to realised investment earnings on the portion of an individual's superannuation balance exceeding $3 million.

Additionally, a new $10 million threshold has been introduced. Earnings on balances between $3 million and $10 million will be taxed at 30%, while earnings on balances above $10 million will be taxed at 40%. Balances below $3 million remain taxed at the current rate of 15%.

Chalmers noted that while tax concessions on balances over $10 million will be reduced, some level of concession will still apply. For example, someone with a $19 million super balance will still receive a $97,900 tax concession, down from $266,000 previously.

Both the $3 million and $10 million thresholds will be indexed in line with the transfer balance cap. Chalmers acknowledged that indexation was always a fallback option to help pass the legislation.

“These reforms maintain concessional treatment of superannuation while ensuring it’s more equitable and sustainable,” Chalmers said. He added that while the original model was optimal at the time, the government adjusted it based on stakeholder feedback.

The revised policy will affect less than 0.5% of Australians in 2026–27 and is expected to generate significantly less revenue—down from a projected $6.2 billion to $2 billion—largely due to a one-year implementation delay. In 2028–29, it’s expected to save the budget approximately $1.6 billion, factoring in the cost of increasing the Low Income Super Tax Offset (LISTO).

Chalmers reiterated that super tax concessions currently cost the budget over $55 billion annually and are on track to exceed the cost of the age pension by the 2040s.

Industry Response: Support for LISTO Reforms

Superannuation bodies praised the LISTO changes, which have been stagnant for 13 years. The reforms include:

  • Expanding eligibility to cover the first two tax brackets, increasing the threshold from $37,000 to $45,000.

  • Raising the rebate cap from $500 to $810, fully refunding tax on employer super contributions for eligible workers.

Misha Schubert, CEO of the SMC, described the changes as a “good step forward,” especially for low-paid workers, women, and essential workers. “Fixing the outdated LISTO will make a big difference to more than a million low-income Australians’ retirements,” she said.

The Association of Super Funds of Australia (ASFA) projected the LISTO changes could add around $15,000 to the super balances of 1.3 million low-earning Australians—60% of whom are women.

ASFA CEO Mary Delahunty said the reforms will correct a fundamental flaw: low earners currently pay more tax on their super than on their take-home pay. The average increase in LISTO payments will be $410 per worker.

“These changes make the system fairer and more sustainable,” Delahunty said, adding that ASFA is committed to working with Treasury and the ATO to ensure smooth implementation.

AustralianSuper’s Chief Strategy Officer, Paula Benson, said the reforms make the already “world-class super system” even more equitable. She supported indexing Div 296 and taxing only realised gains as long-term improvements.

Rick Maggi CFP, Financial Advisor Perth