What the proposed super tax changes could mean for you
The federal government has announced updates to its plan to reduce tax concessions on superannuation investment earnings for Australians with balances over $3 million.
While the proposal is yet to be legislated, several key changes have been introduced.
What’s changing?
The revised proposal excludes unrealised capital gains, meaning only realised gains including profits from the sale of assets like shares or property will be subject to this additional tax.
Another change is the introduction of a two-tiered system rather than a single flat tax rate:
The total concessional tax rate applied to earnings on balances between $3 million and $10 million will increase from 15% to 30%.
The total concessional tax rate applied to earnings on balances over $10 million will increase from 15% to 40%.
Importantly, under the revised proposal, both the $3 million and $10 million thresholds will be indexed over time. This means the thresholds will gradually rise, recognising that $3 million today won’t go as far in 10 or 20 years.
Finally, the government has delayed the proposed start date by one year until 1 July 2026.
How will it work?
Treasury have published a fact sheet about the proposed changes, which they’ve called Better Targeted Superannuation Concessions (BTSC), including detail about how the policy will work.
It includes two examples, which show how the changes would work in practice:
Example 1: Megan – both APRA-regulated fund and SMSF interests
Megan is 58 and she is both a member of an APRA-regulated fund and a member of an SMSF and has a total super balance of $4.5 million, of which $2.3 million is in an APRA fund and the remaining $2.2 million is in an SMSF.
In the 2026-27 financial year, Megan had $100,000 in realised earnings from her APRA fund and $200,000 in realised earnings from her SMSF (a total of $300,000).
The proportion of her $4.5 million balance above the $3 million threshold is 33.33%. The proportion above $10 million is nil.
Megan’s BTSC tax liability is therefore $15,000 (0.15 x 0.3333 x $300,000).
Example 2: Emma – SMSF member with over $10 million
Emma is 55 and a member of an SMSF and has a total super balance of $12.9 million at the end of the 2026-27 income year. That year she was attributed $840,000 of the fund’s realised earnings for the purposes of this tax.
The proportion of her balance above the $3 million threshold is 76.74% and the proportion of her balance above the $10 million threshold is 22.48%.
Emma’s BTSC tax liability is therefore $115,581 (0.15 x 0.7674 x $840,000 + 0.10 x 0.2248 x $840,000). Note the combined BTSC tax rate on earnings over $10 million is 25%.
Why these changes matter
It’s important to note that this legislation will need to pass Parliament before it can come into effect.
The government has also indicated it will undertake further consultation with the superannuation industry and other relevant stakeholders.
If implemented, these changes could have a significant impact on individuals with large superannuation balances and the way they plan for retirement.
If your super balance is approaching or exceeds these thresholds, it may be worth reviewing your situation and seeking financial advice.
How the LISTO is changing
At the same time, the government has announced a boost to the Low Income Superannuation Tax Offset (LISTO) to support lower-income earners.
From 1 July 2027, the LISTO income threshold will increase from $37,000 to $45,000, while the maximum payment will rise from $500 to $810.
The government says that changes could see the total number of Australians eligible for LISTO increasing to 3.1 million.
For more information about the LISTO, visit the ATO website.
Source:
Vanguard October 2025 This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing™
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