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Division 296 tax changes

Key changes
The Government has announced a number of key changes to the proposed Division 296 tax:

• New two-tier tax on large super balances
  From 1 July 2026, superannuation earnings for individuals with total super balances (TSB) above $3 million will be taxed at higher rates:
  • 15% on earnings attributable to TSB between $3 million and $10 million.
  • 25% on earnings attributable to TSB above $10 million.

These tax rates will apply in addition to the fund’s concessional tax rate of 15 per cent on taxable income.

• Indexation introduced
  Both the $3 million and the new $10 million thresholds will be indexed to the Consumer Price Index, reducing bracket creep and limiting the number of affected individuals over time.

• Realised earnings approach
  Tax will be calculated on a fund’s realised (taxable) earnings, attributed to members with high balances, aligning with existing income tax concepts.

• Start date deferred
  The reforms will now commence from 1 July 2026 (previously 1 July 2025), with first assessments expected in the 2027–28 financial year.

New realised earnings approach
As part of these changes, the Government will not proceed with calculating a member’s earnings based on changes in their TSB. Instead, the tax will be based on 'realised earnings', which will be based on a fund’s actual taxable income with adjustments made for contributions and pension phase income.

Impacted members will then be attributed an appropriate share of the fund’s realised earnings based on existing reporting mechanisms or on a fair and reasonable basis (with ATO guidance).

How it is proposed to work
Each year the ATO will determine each member’s liability for Division 296 tax based on their TSB at the end of the year. The ATO will then contact an impacted member’s super funds to request the member’s share of the fund’s realised earnings and will then use these figures to calculate the member’s additional tax liability under the new two-tier system. Those members will then still have the option of paying the tax directly or from their superannuation funds.

What’s still to be confirmed
The Government has advised that additional changes are being considered to ensure fair treatment for defined benefit members and to extend the existing exemption for some judges to improve consistency across jurisdictions.

Next steps
The Government has announced it will introduce legislation to implement these changes as soon as possible in 2026. In addition, further consultation will be undertaken with the superannuation industry and other relevant stakeholders to implement the changes.

For more information
Treasury factsheet: Better Targeted Superannuation Concessions  https://treasury.gov.au/publication/p2025-709385-btsc


Low Income Super Tax Offset (LISTO) changes
The LISTO is a government superannuation payment which offsets the contributions tax paid by funds on superannuation contributions for low income earners.

The Government has announced that from 1 July 2027 it will increase the LISTO income threshold and payment amount as follows:

• the income threshold will rise from $37,000 to $45,000
• the maximum LISTO payment will increase from $500 to $810.

This ensures employees receiving salary and wages of up to $45,000 will receive a full refund of the 15% contributions tax levied on their 12% superannuation guarantee contributions.
 

For more information
Treasury factsheet: Low Income Superannuation Tax Offset (LISTO) https://treasury.gov.au/publication/p2025-709385-listo

Client summary
To assist with advising your client's of the proposed changes, FirstTech has drafted suggested wording that you may find useful.