2025-26 Federal Budget: Superannuation

No major new super measures announced

The Government did not announce any new major superannuation measures in the Budget.

The only super item of note was some additional funding to extend an ATO Tax Integrity Program which is expected to raise an extra $31 million in unpaid superannuation from medium and large businesses and wealthy groups over five years from 2024–2025. Since the MYEFO in December 2024, superannuation fund tax receipts have been revised up by $2.4 billion in 2025–2026 and $9.7 billion over the five years from 2024–2025 to 2028–2029.

The Government also highlighted some improvements to processing times to a range of services as a result of the investment in new staff from November 2023. These included Age Pension claims now being processed 52 days faster and Paid Parental Leave claims taking three days to process instead of 31 days.

Super guarantee: no change to legislated rate rise

The Budget did not announce any change to the timing of the next (and final) super guarantee (SG) rate increase. The SG rate is currently legislated to increase from 11.5% to 12% on 1 July 2025. It has been gradually increasing by 0.5% each year since it was 9.5% in 2020-21. The 12% rate from 1 July 2025 marks its final destination rate.

With the SG rate set to increase to 12% for 2025–2026 (up from 11.5%), employers need to be mindful that they cannot use an employee’s salary sacrificed contributions to reduce the employer’s extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement are not treated as employer contributions which reduce an employer’s charge percentage.

Super guarantee opt-out for high-income earners

The increase in the SG rate to 12% from 1 July 2025 also means that the SG opt-out income threshold will decrease to $250,000 from 1 July 2025 (down from $260,870). High-income earners with multiple employers can opt out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap ($30,000 for 2024–2025 and 2025–2026). Therefore, the SG opt-out threshold from 1 July 2025 will be $250,000 ($30,000 divided by 0.12).

Proposed Div 296 regime: uncertainty remains

While no new major super measures were announced in the Budget, the super industry has enough on its plate at the moment in terms of navigating the uncertainty surrounding the proposed Division 296 regime for superannuation account balances above $3 million from 1 July 2025.

Under proposed Division 296 of the Income Tax Assessment Act 1997, individuals with an adjusted total superannuation balance over $3 million at 30 June each year will be subject to an additional 15% tax on a percentage of earnings equal to the percentage of superannuation balances that exceeds $3 million (not indexed) for an income year. The Division 296 tax will apply from 2025–2026 and will be in addition to any tax their super funds pay on earnings in accumulation. As a result, earnings attributable to balances above $3 million will generally attract a combined headline rate of 30%.

The calculation of “earnings” also means that unrealised capital gains will be subject to the Division 296 tax. This is because “earnings” for Division 296 purposes will be a calculated estimate of earnings and not actual “realised” earnings.

Special rules for working out Div 296 tax will apply to individuals with defined benefit interests. For defined benefit interests, Division 296 tax will generally be deferred for payment until 21 days after the first benefit is paid from the interest.

The Bills containing the proposed regime are still before the Senate. In a Senate Economics Legislation Committee report in May 2024, the Coalition and Greens Senators did not support the Bills in their current form. These Bills will lapse once the Prime Minister calls the Federal election, unless they are passed beforehand when Parliament resumes for the Budget sittings on 25–27 March. Therefore, the status of the proposed Div 296 regime may be subject to the outcome of the May election, if not passed before the calling of the election.

To date, the Australian Labor Party (ALP) has insisted on passing the Division 296 Bills in their current form and rejected concerns about the taxing of unrealised gains and the $3 million threshold not being indexed. If the ALP is returned to Government at the May election, it is likely that the Bills would be re-introduced, although the proposed 1 July 2025 start date may be delayed.