Superannuation Concessions

A smarter approach to Super Tax reform

In a major policy shift, the Government has announced refinements to the Division 296 tax framework under the Better Targeted Superannuation Concessions (BTSC). The revision abandons the controversial “unrealised earnings” proposal in favour of a realised income model, one that aligns more closely with existing income tax principles and brings much-needed clarity for SMSF professionals and high-balance superannuation members.

This move signals a broader recalibration of how concessional treatment applies to very large super balances, ensuring the system remains fair, sustainable, and consistent with the newly legislated Superannuation Objective Act 2024.

A policy grounded in purpose

The Superannuation (Objective) Act 2024 formally defines the purpose of super as:

“To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

This guiding principle underpins the BTSC reforms. By refining concessions for members with balances above $3 million, the Government aims to preserve the concessional nature of super while ensuring it doesn’t become disproportionately advantageous for the wealthiest members. The revised model introduces tiered taxation to enhance progressivity while maintaining alignment with standard income tax rules.

What’s changing from July 2026

The original proposal faced widespread criticism due to its reliance on unrealised earnings, effectively taxing “paper gains” before they were realised. In response, the revised model implements a realised earnings approach, applying only to actual income or gains.

The new Division 296 tax introduces two tiers for individuals with total super balances (TSB) exceeding $3 million:

• 15% additional tax on realised earnings where TSB is between $3 million and $10 million.
• 25% total tax (additional 10%) on realised earnings where TSB exceeds $10 million.

Importantly, the existing fund-level tax structure, 15% for accumulation phase and 0% for retirement phase income, remains unchanged.

How the tax will be calculated

The Australian Taxation Office (ATO) will play a central role in administering the new rules:

• Identify members with TSB ≥ $3 million.
• The ATO applies the tiered tax formula to determine each member’s Division 296 liability.

Members can then pay the tax personally or elect to release funds from their nominated super account. The process is expected to draw on “fair and reasonable” allocation principles under SISR 5.03, with ATO oversight to prevent manipulation or inequitable outcomes.

Who will be affected

Treasury estimates indicate that fewer than 0.5% of Australians will be impacted in 2026–27, and less than 0.1% will fall into the higher 25% tier. The thresholds will also be indexed to maintain fairness:

• $3 million threshold indexed in $150,000 increments.
• $10 million threshold indexed in $500,000 increments.

Looking ahead

Legislation for these measures is expected to be introduced in early 2026, following further industry consultation, with the new framework taking effect from 1 July 2026. The first ATO assessments are anticipated in 2027–28.

While the changes represent a more equitable outcome than the original proposal, they highlight the ongoing evolution of superannuation policy and the importance of proactive planning for SMSF members with substantial balances.

Luma’s view

The revised Division 296 model is a positive step forward, simplifying compliance, aligning with standard tax principles, and removing much of the uncertainty that plagued the original version.

At Luma Advisors, we help clients navigate complex superannuation reforms with clarity and confidence. If your SMSF or super balance exceeds $3 million, now is the time to assess how these rules may affect your strategy and retirement goals.