And just like that, it was all different.
The government’s decision to revise its superannuation tax policy, and the move to tax only realised gains and to introduce tiered thresholds for large balances, was broadly welcomed by the advice industry, which had throbbed with rumours, which had burst into unattributed comments reported in the Australian Financial Review, that there might be changes in the wind…just months after an emphatically re-elected government insisted that its highly controversial ‘Div 296’ super tax proposal would proceed into law.
That would have imposed an additional 15 per cent tax on earnings of superannuation balances above $3 million – unindexed – and introduced the taxing unrealised capital gains.
Had the government – in much of the industry’s view, at least – finally read the room, after months of campaigning from industry groups and stakeholders?
Yesterday, we learned that it had.
The Division 296 tax reforms will index the $3 million threshold and the superannuation tax changes will apply only to realised gains.
“The government’s decision to apply superannuation tax changes only to realised gains is a sensible step, and we commend them for engaging with feedback from across the country,” says Craig Brooke, CEO of friendly society and provider of tax-effective wealth management solutions KeyInvest. “Taxing unrealised gains was never going to be workable in practice or fair in principle.”
The government and the Treasurer have “responded to what was always bad policy,” said Nicholas Ali, head of technical services at Neo Super. The proposed taxation of unrealised gains was particularly bad, he said. “This was poorly designed and catered to the industry funds, who cannot determine realised gains on an individual level. And the indexation of the $3 million threshold should always have been part of the original proposal, as not indexing the cap was going to hit ordinary Australians’ retirement savings in short time.”
Other changes announced yesterday include:
- Member balances above $3 million but below $10 million will be taxed at 30 per cent
- Balances above $10 million will be taxed at 40 per cent, with this higher cap also indexed.
- The tax will apply to defined benefit pensions as well.
- The start date has been pushed back to 1 July 2026 (it was initially proposed for 1 July 2025).
- the low-income superannuation tax offset (LISTO) will be updated to $810 from $500 and the eligibility threshold lifted from $37,000 to $45,000
“Whilst the government is still fiddling with super, it appears less destructive than the previous iteration,” said Ali. “The devil will be in the detail, so we wait to see the fine print on these proposals.”
CPA Australia superannuation lead Richard Webb, echoed these comments, saying that tax on unrealised capital gains “would have been unjust,” and that indexation of super balance thresholds was “vital to protect future generations of workers.” He said the government had listened to the concerns of CPA Australia and other bodies, and the outcomes would “help make Australia’s superannuation system fairer and more equitable,” and “ensure that Australia’s superannuation system remains fit for purpose for future generations.”
The plan to tax unrealised capital gains was “a particularly egregious element of the government’s initial proposal,” said Webb. “Providing certainty and financial stability for this and future generations of retirees is critical. Taxing unrealised gains would have distorted our tax system, which needs broader reform.”
Had the $3 million balance threshold not been indexed, “it would have eventually impacted a greater number of Australians than was acknowledged.”
“Policymakers have a duty to ensure that the spending power of future retirement savings is preserved,” said Webb. “Bracket creep already has a silent eroding effect on personal finances, and allowing further erosion of superannuation savings would have been contrary to the fundamental principles of our tax system.”
Webb also welcomed the changes to the low-income super tax offset (LISTO) scheme announced yesterday, which will mean that more people on low incomes are able to grow their super balances. “Those are positive and long-overdue steps that will help ensure more Australians – especially women and part-time workers – are not left behind when it comes to retirement savings,” he said.
KeyInvest’s Brooke cautioned, however, that the government’s backdown does not remove the need for many investors to rethink how their wealth is structured.
“Even with these improvements, the reality is that more Australians will find themselves constrained by superannuation caps as their wealth grows. This is a defining moment for high-net-worth investors, financial advisers, and family offices to look beyond super,” he said.
“Investment bonds remain one of the few truly flexible, tax-effective alternatives, particularly for those thinking about intergenerational wealth transfer or planning outside of super. “