Understanding Division 296 and Concessions Changes
Australia’s 2026-27 Budget and related superannuation law reforms introduce new tax treatment under Division 296 of the Income Tax Assessment Act 1997. Key changes: natural persons with Total Super Balance (TSB) above $3 million will have an extra 15% tax on earnings above that threshold. Balances over $10 million face an additional 10% tax on earnings above that second threshold. These apply from 1 July 2026 to income years starting then. (csc.gov.au)
Revisions also target the Low Income Superannuation Tax Offset (LISTO): threshold rises from $37,000 to $45,000 and the maximum LISTO payment increases from $500 to $810, effective 1 July 2027. (aph.gov.au)
Who Is Affected?
- High-balance super members: balances above $3m or $10m will pay more tax on their earnings in retirement phase.
- Low income earners using super co-contributions or tax offsets**: will benefit from expanded eligibility and higher payments after July 2027.
Mitigation Strategies
- Monitor your Total Super Balance: close to $3m or $10m? Consider spreading contributions or withdrawals strategically before thresholds are breached.
- Transition into retirement planning sooner: once you're in the retirement phase, earnings may be taxed differently; this is now more significant for large balances.
- Optimize low income super strategies: ensure you claim LISTO where eligible, and undertake salary sacrificing to align income near the rising threshold.
- Consider product selection: choices in super funds’ investment strategies may influence earnings exposure—conservative options might reduce taxable earnings above thresholds.
Example Scenarios
| Scenario | Pre-Change | After Division 296 Effective July 2026 |
|---|---|---|
| Alice has $3.5 million in super and $100,000 in investment earnings in retirement phase | Earnings taxed at favourable rates (0–15%) | Earnings up to $3 million remain as before; earnings over that taxed at additional 15% on the $500,000 above the $3 mil threshold. |
| Ben earns low super income ($30,000) and eligible for LISTO | Maximum LISTO $500, eligibility up to $37,000 income | Eligible up to $45,000; maximum LISTO increases to $810 — bigger benefit from 1 July 2027. |
Actionable Advice
- 📋 Review super statements early (mid-2026) to see if you’re near thresholds.
- 📆 Plan contributions and withdrawals around year ends.
- 🔍 Consult your super fund’s earnings reporting—they’ll report proportions above thresholds and likely notify you.
- 💡 For low income earners, ensure your wages and returns are properly declared so you don’t miss LISTO eligibility.
Key Takeaways
- Division 296 introduces a tiered tax on super earnings above large balance thresholds starting 1 July 2026.
- LISTO improvements from July 2027 help lower income earners.
- Strategic management of super contributions and timing can reduce the impact of tax increases.
- Seek professional advice, especially if your super balance is large or your income is near LISTO thresholds.