The major changes to the proposed $3 million super tax legislation have been welcomed across the superannuation industry.
Treasurer Jim Chalmers announced that amendments will be made to the controversial tax, most importantly, the scrapping of the tax on unrealised capital gains and indexation of the $3 million threshold.
The amendments to the Better Targeted Superannuation Concessions bill will now see the Division 296 tax payable only on the realised investment earnings generated by the portion of an individual’s total superannuation balance that exceeds $3 million.
Additionally, a second threshold of $10 million has been added, beyond which the tax rate will rise to 40 per cent. On super balances between $3 million and $10 million, the tax rate will be 30 per cent, while balances below will maintain the current rate of 15 per cent.
Chalmers said tax concessions on balances exceeding $10 million would be reduced, but some form of concession would still remain.
“The average balance for someone who’s got more than $10 million [in super] is a $19 million balance. They will still get a tax concession, I think, of $97,900, but they were getting a tax concession of $266,000. That’s just one example,” Chalmers said.
The balance thresholds for both the $3 million and $10 million higher concessional rates will be indexed in connection with the transfer balance cap.
Chalmers said the government has “always had in our back pocket indexation, or an indexation like this, in order to get it through parliament”.
“These reforms maintain the concessional treatment of superannuation but ensure it is provided in a more equitable and sustainable way,” Chalmers said.
He added that the original model was the best option identified at the time, but the government had taken the decision to adjust the model to recognise the views it had heard since then.
“With these changes we are continuing to deliver on our longstanding commitment to better target superannuation concessions that we took to the last election,” he said.
“Our policy to better target super concessions for large balances will continue to affect less than 0.5 per cent of all Australians in 2026–27. It maintains the concessional treatment of superannuation for all taxpayers and makes superannuation tax concessions more targeted for those with large balances.”
He continued that the reworked tax would raise considerably less than the previously projected $6.2 billion over the forward estimates, which has been revised down to $2 billion.
“A very big chunk of that is the one-year delay,” Chalmers added.
In the first full year of operation (2028–29), the package will provide a saving to the budget of around $1.6 billion in net terms, including the cost of increasing the low-income super tax offset (LISTO).
Final costs and budget impacts will be accounted for in the 2025–26 Mid‑Year Economic and Fiscal Outlook.
“Super tax concessions cost the budget more than $55 billion per year and will exceed the cost of the age pension in the 2040s,” Chalmers said.
“These reforms maintain the concessional treatment of superannuation, but ensure it is provided in a more equitable and sustainable way. There are 14 times as many people who will benefit from the boost to LISTO as there are people with over $3 million in super.”
Industry applauds changes
Association and industry bodies have said the changes will make superannuation more equitable across the board, especially the changes to the LISTO, which has been frozen for 13 years.
The government announced it will make two simple fixes to the LISTO, including:
- Lifting eligibility for the LISTO to fully cover the first two tax brackets. That means lifting LISTO eligibility to $45,000 (from $37,000).
- Increasing the cap on the rebate to $810 (from $500) completely refunding the tax these workers pay on their employer super contributions.
Misha Schubert, CEO of the SMC, said the council has consistently supported the principle of making the super system fairer, more equitable, and more sustainable.
“Today’s changes to the Div 296 proposals are a good step forward,” she said.
“And the boost to LISTO would make the super system even stronger and fairer for those who need it most. We all know, when something’s out of date, you fix it. By fixing the LISTO, the government will make a big difference to the retirements of more than a million of Australia’s lowest-paid workers.
“The LISTO boost is a win for low-paid workers, a win for women, a win for key workers, and a win for the principle that every single Australian deserves economic security and dignity in retirement.”
The Association of Super Funds of Australia said the proposed LISTO changes have the potential to add around $15,000 in today’s dollars to the super balances of 1.3 million low-earning Australians at retirement, 60 per cent of whom are women.
Mary Delahunty, CEO of ASFA, said the government’s proposed reforms will ensure that people earning under $45,000 a year are not penalised with higher tax inside super than outside of super.
The average increase in the LISTO payment for affected workers will be $410, with a potential benefit of around $15,000 (in today’s dollars), depending on an individual’s income over time.
“Super offers working Australians a deal: if you put money away to support yourself in retirement, and reduce your reliance on the age pension, you get a tax concession. Currently, for many of the lowest-earning Australians, the deal isn’t working because their tax rate is higher on super than on take-home pay,” Delahunty said.
“Giving people on low incomes a higher tax offset will mean they are less disadvantaged by taxation on super.”
Delahunty continued that combining the LISTO changes with proposed increases to concessional tax rates for earnings on high-balance super accounts will make the super system fairer and more sustainable in the long term.
“It’s vital that the super system is equitable and sustainable, and the changes proposed today by the Treasurer are important moves to achieving those goals,” Delahunty said.
“The proposed changes to tax concessions on earnings in accounts with more than $3 million and $10 million will require Australia’s superannuation funds to do extra work, but we will work with Treasury and the ATO on behalf of the sector to make sure the changes are smooth and achievable for our member funds.”
Paula Benson, chief strategy officer for AustralianSuper, said the government should be congratulated on initiatives that will make the “already world-class super system” even more equitable.
“The Treasurer’s landmark reforms will make super fairer and help Australians build their retirement savings with confidence,” Benson said.
“We are long-time supporters of lifting the LISTO to help people who need it most, especially women with low incomes. The indexing of the Div 296 proposal and taxing of realised gains will ensure the system remains fit for purpose for future generations of Australian workers.
“It’s important for parliament to legislate the changes to ensure Australians can retire in their best possible financial position.”
Richard Webb, superannuation lead for CPA Australia, said the revisions followed months of campaigning from industry groups and stakeholders, and Parliament should legislate the changes.
“The government has listened to our concerns. The outcomes will help make Australia’s superannuation system fairer and more equitable,” Webb said.
“The indexing of the Div 296 proposal and taxing of realised earnings will ensure that Australia’s superannuation system remains fit for purpose for future generations.
“If legislated, this change is expected to benefit millions of low-income earners by improving their capacity to contribute to superannuation and build long-term retirement savings.”
Webb said if the $3 million balance threshold had not been indexed, it would have eventually impacted a greater number of Australians than was acknowledged.
“We are pleased that the government has listened to our feedback and made these common-sense changes,” he said.
“Policymakers have a duty to ensure that the spending power of future retirement savings is preserved. Bracket creep already has a silent eroding effect on personal finances. Allowing further erosion of superannuation savings would have been contrary to the fundamental principles of our tax system.”
