Federal Super Tax Backflip: Understanding the revised superannuation reforms

Treasurer Jim Chalmers has announced a major revision to the federal government's previously proposed superannuation tax reform, aiming to address widespread criticism and secure parliamentary support. The original proposal, announced over two years ago, faced backlash for proposing a 30% tax on earnings from super balances over $3 million, including unrealised capital gains, and for failing to index the threshold, raising concerns about bracket creep.

In a watering down of its original proposal, the government has introduced a tiered tax system for superannuation earnings, targeting high-balance accounts. Earnings from super balances exceeding $3 million will be taxed at 30%, while those above $10 million will face a 40% tax rate. Both thresholds will be indexed to inflation, helping to mitigate long-term bracket creep and maintain fairness over time.

This article provides an overview of the updated proposal, its implications and key considerations for accountants, advisers, and SMSF trustees to be aware of.

What has changed?

At the heart of the updated proposal is a new tiered tax structure. Individuals with superannuation balances above $3 million will now face a 30% tax on earnings above that threshold, while those with balances exceeding $10 million will be taxed at 40%. Importantly, both thresholds will be indexed to inflation, a move designed to prevent bracket creep.

One of the most important changes is that the government has removed the tax on unrealised gains. Under the original plan, people could have been taxed on increases in the value of their assets, even if they hadn’t sold them. Now, only gains that are actually received in cash will be taxed. This makes the rules simpler and fairer, especially for SMSFs that hold valuable but illiquid assets.

The government is also increasing the Low Income Superannuation Tax Offset (LIST Offset) from $500 to $810 and increasing the income threshold for LIST Offset eligibility from $37,000 to $45,000.

These changes are set to take effect from 1 July 2026, giving individuals, advisors, and fund managers time to adjust their strategies.

Beneficiaries of the Reforms

• The removal the unrealised gains tax is a welcome change for those holding assets like farmland, property, or shares in private companies, which can be hard to sell quickly. These assets will now only be taxed when sold, and when cash proceeds are available to cover the tax.
• Approximately 1.3 million low-income Australians are expected to benefit from the increase in the LIST Offset by increasing their ability to save through superannuation and grow retirement savings over time. This adjustment is expected to boost retirement savings by up to $15,000 for eligible Australians, with the number of beneficiaries expanding to over 3 million individuals.

Groups facing increasing taxation or complexity

• Individuals with superannuation balances exceeding $3 million will face an additional 15% tax on earnings above that threshold, reducing the tax advantages of holding large sums in superannuation.
• Those with earnings on superannuation balances above $10 million will be subject to an additional 25% tax.
• SMSFs with concentrated holdings in high-growth or illiquid assets may still encounter increased complexity. While unrealised gains are no longer taxed, the need to track and report realised earnings, and manage liquidity to meet future tax obligations, will require careful planning and potentially more sophisticated administration.

Effects of the Proposed Changes

The proposed changes will have implications for both the nation’s wealthiest individuals and its most financially vulnerable. While the reforms introduce new tax thresholds, they are expected to affect fewer than 0.5% of Australians. Approximately 90,000 individuals hold superannuation balances between $3 million and $10 million, while only around 8,000 have balances exceeding $10 million.

For balances below $3 million, the existing 15% tax rate remains unchanged. However, the threshold will now be indexed to inflation, and crucially, will only apply to realised gains. These measures will ensure that:

• the applicable threshold amount will increase over time in line with rising living costs and average account balances; and
• individuals are not taxed on increases in asset value unless those gains are actually received in cash.

Overall, the reforms aim to enhance the fairness and sustainability of the superannuation system by reducing generous tax concessions for the wealthiest Australians, while protecting the interests of the broader population.

What remains unclear?

The government has not clarified whether the capital gains tax discount (which allows super funds to reduce taxable gains by one-third for assets held over 12 months) will continue under the revised regime. If the discount is removed, it could increase the effective tax rate on long-held assets and prompt a reassessment of investment strategies, even for those with balances below the new thresholds.

How advisers and SMSF trustees should respond to the announcement?

In light of the proposed changes, financial advisers and SMSF trustees should carefully consider how the revised superannuation tax reforms may affect their clients and funds. It is important to remain proactive and stay informed about further updates to ensure ongoing compliance and to achieve the best possible outcomes under the superannuation tax reforms.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

• Proposed Superannuation Tax Increase: Extra 15% Tax, Where Funds Have $3 Millions
• Federal Government Budget 2025/2026: What it means for you
• Superannuation and succession planning: the importance of getting your house in order

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