Parliament has delivered significant changes to Australia's superannuation system that will reshape how high-balance super accounts are taxed and boost support for low-income earners.
Two key Bills have passed without amendment and are now law : the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and its companion Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026 introduce the long-anticipated Division 296 tax alongside enhanced low income superannuation tax offset (LISTO) provisions.
This change will affect fewer than 0.5% of current superannuation members – approximately 80,000 Australians with extremely large super balances. For the vast majority, superannuation tax arrangements will remain unchanged.
The new Division 296 tax, commencing 1 July 2026, targets earnings on large superannuation balances through a two-tiered system for earnings on balances exceeding $3 million:
the current 15% tax rate remains for earnings on balances up to $3 million;
earnings on the super portion between $3 million and $10 million will be taxed at an effective 30% rate; and
earnings on amounts above $10 million will face a 40% effective tax rate.
These thresholds will be indexed to the Consumer Price Index to keep pace with inflation. The new tax applies only to future realised earnings, not unrealised capital gains on unsold assets.
The tax applies across APRA-regulated funds, SMSFs and exempt public sector schemes, though calculation methods vary between fund types. The ATO will assess the tax amount, with payment generally due within 84 days of receiving the assessment notice. Individuals can arrange for amounts to be released from their superannuation interests to meet this tax obligation.
For defined benefit interests not in retirement phase, Division 296 tax payment is deferred until 21 days after the first benefit payment.
Timing provides planning opportunity
Division 296 applies from the 2026–2027 income year onwards. Importantly, for the first year only, liability is determined by reference to your total superannuation balance at 30 June 2027, rather than at the start of the year. This creates a window for individuals to reduce their balances before that date if needed.
There's also a unique provision for the 2026–2027 year: individuals who die on or before 30 June 2027 will not be liable for Division 296 tax, as their balance will be nil at the measurement date.
Less publicised but equally important are changes to how total superannuation balances (TSB) are calculated. The new framework introduces a “TSB value” concept, with each superannuation interest having its own TSB value. Your total TSB becomes the sum of all these values across your Australian superannuation interests.
The TSB value is determined either by prescribed regulations or, where none exist, by the withdrawal benefit amount payable if you voluntarily ceased the interest.
These TSB changes apply from 1 July 2026 and affect all tax purposes where TSB is relevant, not just Division 296 calculations. However, for Division 296 purposes only, limited recourse borrowing amounts are excluded from TSB calculations to ensure the tax applies to net assets only.
From 1 July 2027, the maximum LISTO increases from $500 to $810, while the eligibility threshold rises from $37,000 to $45,000. The new framework links both amounts to existing tax thresholds and rates, meaning they will automatically adjust when marginal tax rates or superannuation guarantee rates change.
These changes represent the most significant superannuation tax reforms in years. If you have a large superannuation balance, the window before 30 June 2027 provides time to consider your options. Low-income earners will benefit from enhanced LISTO support from 2027.
Given the complexity of these changes and their interaction with existing superannuation rules, it's essential to seek professional advice to understand how they affect your specific circumstances and retirement planning strategy.