ASFA welcomes the passage of the Building a Stronger and Fairer Super System legislation through the Parliament, which includes two sets of changes to superannuation tax settings.
The first change strengthens the Low-Income Superannuation Tax Offset (LISTO) so that around 1.3 million low-income workers will receive new or higher government payments into their super accounts. This brings the number of people receiving the LISTO to 3.1 million, or 1 in 6 Australians with super.
Eligibility for the LISTO will in future be linked to the upper threshold of the second-lowest tax bracket, and the maximum payment will increase from $500 to $810.
The second change introduces a tiered system for taxing earnings on the highest super balances (the Division 296 tax). This will apply to around 80,000 to 90,000 Australians, or around 1 in 200 people with super. Earnings on super will remain concessionally taxed for every one of these individuals.
“This legislation does two things. It boosts the retirement savings of more than a million Australians by strengthening the tax offset for low-income workers. And it applies a higher, but still concessional, tax rate to some of the investment earnings of the 1 in 200 superannuants with the very highest balances,” said James Koval, ASFA’s Chief Policy and Advocacy Officer.
“The critical point is that super will still be concessionally taxed for every Australian, from the lowest earner to those with $20 million in super. In almost every circumstance, people will pay a lower tax rate on their super investment earnings than they would outside super. The concession is now smaller for those at the top, but it is still a concession,” Mr Koval said.
How the LISTO boost will work
LISTO is a government payment into eligible members’ super accounts that offsets the 15 per cent tax on contributions to super. It is designed to ensure people in the lowest income tax brackets still receive a genuine tax concession on super, rather than paying a similar or higher rate of tax on super contributions than on their wages.
For example, those earning less than $18,201 are not liable for tax on their wages. However, they pay 15 per cent tax on contributions to super. Without the LISTO, super would be a tax penalty rather than a concession. The LISTO corrects this.
Case study: worker earning $44,000
Damon is a 35-year-old warehouse worker who earns $44,000. He was previously not eligible for the LISTO, as the maximum threshold was $37,000, below the upper threshold of the second-lowest tax bracket.
In FY27, the income threshold for LISTO increases to $45,000, so Damon is now eligible. The maximum LISTO is designed to offset the 15 per cent contributions tax on Superannuation Guarantee contributions, up to the new cap of $810.
At $44,000, Damon’s super guarantee contribution will be 12% × $44,000 = $5,280.
The super contributions tax payable on this amount will be 15% × $5,280 = $792. So, Damon will receive a LISTO payment of $792 credited to his super account.
For someone in Damon’s position (in terms of age and earnings, and assuming his wages don’t change), ASFA modelling shows that receiving a LISTO payment of about $790 each year lifts Damon’s projected super balance at retirement from around $293,000 to $342,000 in today’s dollars.
How the Division 296 tax will work
Currently, earnings on superannuation investments are taxed at a flat rate of 15%, regardless of whether an account holds $10,000 or $10 million.
The Division 296 tax introduces a tiered system for earnings on the high-balance portions of super accounts. Specifically, the tax rate on earnings will increase:
- By anadditional 15% (effectively 30%) for the portion of an account balance exceeding $3 million, below $10 million.
- By anadditional 25% (effectively 40%) for the proportion of an account balance exceeding $10 million.
The tax will only apply to realised earnings. That is, earnings in cash after an investment asset has been sold, rather than “paper gains” on assets that have not been sold.
The ATO will calculate the liability for the affected 80,000 Australians, who will have the option to pay the tax directly from their super funds rather than out-of-pocket.
Case study: account balance greater than $3 million in an institutional super fund
Joan is a 50-year-old dermatologist with a $3.2 million balance in a large, institutional super fund. In 2026-27, her fund reports $250,000 in investment earnings on her account, of which only $125,000 is realised from the sale of investment assets.
The ATO will calculate Joan’s Division 296 tax liability as follows.
- Portion above $3 million: $3.2m minus $3.0m = $200,000, which is 6.25 per cent of Joan’s balance.
- Realised earnings attributable to the amount above $3 million: 6.25 per cent of $125,000 realised earnings = $7,812.50.
- Additional Division 296 tax (15 per cent of attributable earnings): 15 per cent of $7,812.50 = $1,171.88 (about $1,172).
Case study: account balance greater than $3 million in an SMSF
Fred is a 62-year-old man who retired from farming last year. His two daughters continue to run the farming business with their own families. They pay rent for the land they farm to Fred’s SMSF, which holds the farm as an investment asset.
The farm is valued at $3 million on 30 June 2026. In 2026-27, the SMSF receives rent, interest and dividends, and sells some shares.
Fred’s Division 296 tax liability in FY27 will be calculated by the ATO as follows.
Work out realised earnings for Division 296 purposes:
- Rent received: $120,000
- Interest and dividends: $60,000
- Taxable capital gain included in the fund’s income: $20,000 (after the one-third CGT discount)
- Deductible expenses: $10,000
- Netrealised earnings: $120,000 + $60,000 + $20,000 – $10,000 = $190,000
Work out the portion of Fred’s balance above $3 million:
- At 30 June 2027, the farm is valued at $3.3 million and the value of his remaining investments has increased.
- The SMSF balance is now $4.0 million, so Fred is $1.0 million above the $3.0 million threshold. That is 25 per cent of his total balance.
Calculate the Division 296 amount (the extra tax):
- Earnings attributable to the amount above $3 million: 25 per cent of $190,000 = $47,500.
- Additional Division 296 tax (15 per cent): 15% of $47,500 = $7,125.
Case study: account balance greater than $10 million
Emily (55) is a partner at a boutique law firm she founded and has $12.9 million in her SMSF as at 30 June 2027. In 2026-27 she sells a business property held in the SMSF and realises $840,000 in taxable capital gains. She sells no other assets.
Emily’s Division 296 tax liability in FY27 will be calculated by the ATO as follows.
Work out the portions of Emily’s balance above $3 million and above $10 million:
- Total super balance = $12.9 million.
- Amount between $3 million and $10 million = $7 million ($10m – $3m).
- Amount above $10 million = $2.9 million ($12.9m – $10m).
- Between $3m and $10m: $7m / $12.9m = 54.26% share of total balance.
- Above $10m: $2.9m / $12.9m = 22.48% share of total balance.
Apply those proportions to Emily’s realised earnings:
- Earnings attributable to the $3m to $10mportion: 54.26% × $840,000 = $455,814.
- Earnings attributable to the above $10mportion: 22.48% × $840,000 = $188,837.
Calculate the Division 296 amount (the extra tax):
- For the $3m to $10mportion, Division 296 applies an additional 15 per cent tax: 15% × $455,814 = $68,372.
- For the above $10mportion, Division 296 applies an additional 25 per cent tax: 25% × $188,837 = $47,209.
- Total Division 296 assessment: $68,372 + $47,209 = $115,581.
For further information, please contact:
ASFA media team
0451 949 300
mediaunit@superannuation.asn.au
About the Association of Superannuation Funds of Australia (ASFA)
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry, and the only industry body that represents all parts of the APRA-regulated system.
Our more than 100 members include retail, industry, corporate and public sector funds and their service providers. For over sixty years, ASFA has been the voice of super, advocating for a dignified retirement for all Australians. Through research, advocacy and collaboration, ASFA promotes efficiency, sustainability and trust in Australia’s world-class retirement income system.