Changes to super from 1 July 2027
On 10 March 2026, the Australian Parliament passed the Building a Stronger and Fairer Super System Bill. The changes will come into effect from 1 July 2027.
This Bill will implement:
- Changes to the taxation on earnings in super for balances over $3 million (known as Division 296 tax)
- An increase to the threshold for eligibility for the Low Income Superannuation Taxation Offset (LISTO)
Tax changes on balances over $3 million (Division 296)
Earnings in super are currently taxed at a flat 15%. When the Division 296 changes come into effect, members with over $3 million in their super will pay additional tax on some of their earnings.
There are 2 levels that apply:
- For balances above $3 million:
Tax will continue to apply at 15% on earnings on the super balance under $3 million and 15% additional tax will apply on some of the earnings on the balance above $3 million. - For balances above $10 million:
Tax will continue to apply at 15% on the earnings on the super balance under $3 million, plus an additional tax of 15% (in addition to the current 15%) on the some of the earnings on the portion of the super balance between $3 million and $10 million, plus an additional 25% tax (in addition to the current 15%) on some of the earnings on the super balance of the account above $10 million.
The tax only applies to realised earnings (that is, after an investment asset has been sold by the super fund). The additional tax won’t apply to on ‘paper gains’.
An example:
Geoff’s super balance is $3,700,000.
The $700,000 proportion of his super over $3 million makes up 18.9189% of his balance.
His super fund reports to the Australian Taxation Office that he received a total of $259,000 in earnings on his super for the year, but some of that is in ‘paper-based gains’ which means his super fund hasn’t actually sold all of the assets involved in making that return.
His super fund reports that only $150,000 of his $259,000 in earnings were in realised earnings and therefore only the $150,000 of his earnings are factored in for calculation of the Division 296 tax.
For Geoff, 18.9189% of the $150,000 in realised earnings is $28,378.35. This $28,378.35 is the amount that will be taxed at the additional rate (an additional 15% tax). This means that under the new Division 296 tax rules, Geoff will pay $4,256.75 in additional tax over what he would pay now (that is, his additional tax is $28,328.35 x 15%).
Low Income Superannuation Tax Offset (LISTO)
LISTO works to offset the contributions tax charged on super for lower income members.
From 1 July 2027, the income threshold to receive this offset is increasing to $45,000, up to a cap of $810.
All members are charged 15% tax on the contributions that are made into their super by their employer. A person who earns a lower income may pay less than 15% as their marginal tax rate on their wage, given the tax-free threshold that applies to the first $18,201 per year of income. This means that lower income earners may effectively be taxed more heavily of their super (at a flat 15%) than they are on their general wage.
The LISTO is designed to offset this 15% tax.
An example:
Phu earns $40,000 a year. His super guarantee contributions from his employer are the standard 12%, which is $4,800. His super fund deducts contributions tax of 15% when the contributions are received to the fund. That’s $720 a year.
In Phu’s case, because his $40,000 income is under the new, increased $45,000 income threshold for LISTO, he is eligible for the LISTO payment. The $720 contribution tax will be offset by a LISTO payment amount into his super of $720.
The examples provided here are based on our current understanding of how the Division 296 tax and LISTO calculations will work. We recommend strongly that you speak to your financial adviser, accountant or other taxation professional to determine if or how these changes could impact you.