Superannuation Tax 2026: Division 296, Payday Super, and New Contribution Caps Explained
Australia's superannuation landscape is undergoing its most significant transformation in years. From 1 July 2026, the government's new Division 296 tax will introduce a tiered tax system for balances above $3 million, while employers must prepare for the Payday Super revolution. With contribution caps set to increase and the Low Income Super Tax Offset (LISTO) expanding, 2026 is a pivotal year for anyone with a superannuation account.
This comprehensive guide covers all the key changes taking effect in 2026, who they affect, and what you need to do to prepare.
Overview: The 2026 Superannuation Changes at a Glance
Division 296 Tax: What Is It and Who Does It Affect?
The New Tax Rates
From 1 July 2026, the government will implement a tiered tax system for large super balances through new Division 296 of the Income Tax Assessment Act 1997 . The changes apply to earnings on the portion of an individual's total superannuation balance (TSB) that exceeds certain thresholds:
Balances up to $3 million: No change—earnings continue to be taxed at 15% (or 0% for pension phase accounts)
Balances between $3 million and $10 million: Additional 15% tax, bringing total to 30% on that portion of earnings
Balances above $10 million: Additional 25% tax (first 15% plus extra 10%), bringing total to 40% on that portion
Key Features of the New Tax
Indexation of Thresholds
Unlike the original 2023 proposal, the $3 million and $10 million thresholds will be indexed to the Consumer Price Index (CPI) in $150,000 and $500,000 increments respectively . This ensures that over time, only those with genuinely large balances (in real terms) will be affected.
Realised Earnings Only
The government has backed down from the contentious proposal to tax unrealised capital gains. Under the final design, only realised earnings—such as dividends, interest, and capital gains from assets actually sold—will be subject to the additional tax . This change followed widespread criticism from farmers, small business owners, and SMSF trustees who feared being forced to sell assets to pay tax on paper gains .
Cost Base Reset
For SMSFs and small APRA funds, assets can have their cost bases reset to market value as at 30 June 2026 for Division 296 purposes only. This means unrealised gains that accrued before the start of the new rules will not be caught by the tax .
How the Tax Is Calculated
The ATO will calculate the tax liability based on a proportion of the member's earnings. Here are two examples from the legislation :
Example 1: Balance between $3M and $10M
Megan has a TSB of $4 million at 30 June 2027. The proportion over $3 million is:
($4M – $3M) ÷ $4M = 25%
Her super fund calculates her share of earnings (excluding unrealised gains) as $100,000.
Megan's tax liability: $100,000 × 25% × 15% = $3,750
Example 2: Balance over $10M
Gustav has a TSB of $12 million at 30 June 2027. His calculations are:
Proportion over $3M: ($12M – $3M) ÷ $12M = 75%
Proportion over $10M: ($12M – $10M) ÷ $12M = 16.67%
His earnings are $500,000.
Tax liability: ($500,000 × 75% × 15% = $56,250) + ($500,000 × 16.67% × 10% = $8,335)
Total: $64,585
Who Is Affected?
The changes will affect approximately 0.5% of Australians with a superannuation account—those with balances exceeding $3 million . This includes:
Members of large APRA-regulated funds
SMSF members
Individuals with defined benefit interests (with special rules applying)
What Should High-Balance Members Do?
Financial experts advise caution :
Don't rush to withdraw: For most members with balances between $3M and $10M, leaving money in super still works out better than taking it out and investing elsewhere
Plan strategically: If you do plan to reduce your balance, consider a 3-year approach—reducing the balance before realising capital gains, then realising assets with low gains, then dealing with high-gain assets
Wait for legislation: The changes are not yet law. The Bills were introduced on 11 February 2026 and require parliamentary approval
Payday Super: What Employers Must Know
The New Rules
From 1 July 2026, employers must pay their employees' superannuation guarantee (SG) contributions at the same time as salary and wages .
Key requirements:
Super must be paid within 7 business days of payday
For new employees, the first contribution must be paid within 20 business days of the salary or wages being paid
Currently, employers only need to pay super quarterly
Why It Matters
This change aims to:
Reduce the incidence of unpaid or late super
Improve retirement outcomes through earlier investment and compounding
Give employees better visibility of their super contributions
Employer Action Steps
If you're an employer, now is the time to prepare :
Review payroll systems to ensure they can handle more frequent payments
Speak with your payroll software provider about compliance updates
Educate staff responsible for payroll processing
Consider cash flow impacts of more frequent super payments
Note: The ATO's Small Business Super Clearing House closes on 30 June 2026—arrange alternative clearing arrangements
Contribution Caps: Expected Increases for 2026-27
Thanks to wage growth, super contribution limits are expected to increase from 1 July 2026 .
| Cap Type | 2025-26 | 2026-27 (Expected) |
|---|---|---|
| Concessional (before-tax) cap | $30,000 | $32,500 |
| Non-concessional (after-tax) cap | $120,000 | $130,000 |
These caps are linked to Average Weekly Ordinary Time Earnings (AWOTE). Based on recent data, indexation is highly likely unless wages drop significantly .
Opportunities
Higher caps create opportunities for:
Salary sacrificing additional pre-tax income
Making larger after-tax contributions
Catching up on unused concessional caps (if eligible under carry-forward rules)
Low Income Super Tax Offset (LISTO) Expansion
From 1 July 2027, the Low Income Superannuation Tax Offset will be significantly enhanced :
| Measure | Current | From 1 July 2027 |
|---|---|---|
| Income threshold | $37,000 | $45,000 |
| Maximum payment | $500 | $810 |
Who Benefits?
The changes will help 1.3 million low-income Australians, of whom around 60% are women . Total eligible Australians will increase to 3.1 million .
LISTO works by offsetting or refunding the 15% tax paid on concessional contributions for low-income earners, ensuring they don't pay more tax on their super than on their take-home pay .
Personal Income Tax Changes
While not strictly superannuation, personal income tax changes from 1 July 2026 affect overall financial planning:
| Income Bracket | 2025-26 Rate | From 1 July 2026 |
|---|---|---|
| $18,201 – $45,000 | 16% | 15% |
A further reduction to 14% is scheduled for 1 July 2027 .
The government estimates these changes will save the average taxpayer approximately $536 per year once fully implemented .
Strategic Considerations for Different Groups
For Members with $3M-$10M in Super
Meg Heffron, Managing Director of Heffron Consulting, advises that while Division 296 tax is "a pain it is not life threatening" . Her analysis suggests:
Leaving money in super generally works out better than withdrawing and investing elsewhere
Plan withdrawals prudently when the time comes
For Members with Over $10M in Super
There is "stronger incentive and urgency to act" . Considerations include:
Whether to withdraw excess amounts now or in 2027
Comparing the 30% tax rate outside super versus 40% inside
For SMSF Trustees
Key actions before 30 June 2026 :
Review all CGT assets expected to be held at 30 June 2026
Consider tax planning to identify potential adverse consequences
Document cost base elections for the Division 296 reset
For Employers
What's Not Yet Law: The Legislative Status
It's crucial to understand that Division 296 tax changes are not yet law .
The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 was introduced on 11 February 2026
The Bills must pass both houses of Parliament
The government may need support from the Greens or crossbenchers
Until the legislation passes, no action should be taken that cannot be undone . However, given the proposed 1 July 2026 start date, planning and scenario analysis should begin now .
Frequently Asked Questions (FAQ)
Q: When do the new super tax rates start?
A: The proposed start date is 1 July 2026, applying to earnings in the 2026-27 income year .
Q: Who pays the Division 296 tax?
A: Individuals with total superannuation balances exceeding $3 million. The ATO will calculate liabilities, but funds must report earnings .
Q: Are unrealised gains taxed?
A: No. The final design taxes only realised earnings. Unrealised gains accrued before 30 June 2026 can be excluded via a cost base reset .
Q: Will the thresholds be indexed?
A: Yes. Both the $3 million and $10 million thresholds will be indexed to CPI in $150,000 and $500,000 increments .
Q: What is Payday Super?
A: From 1 July 2026, employers must pay super guarantee within 7 business days of paying wages, instead of quarterly .
Q: Will contribution caps increase in 2026?
A: Yes, expected to $32,500 (concessional) and $130,000 (non-concessional) from 1 July 2026 .
Q: How does LISTO change benefit low-income earners?
A: From 1 July 2027, the income threshold rises to $45,000 and the maximum payment increases to $810, helping 1.3 million Australians .
Q: Should I withdraw money from super before the new tax starts?
A: Financial advisers recommend waiting until legislation passes and seeking professional advice. For most, leaving money in super remains beneficial .
Q: How will the ATO know my super balance?
A: The ATO will use total super balance (TSB) data reported by super funds as at 30 June each year .
Q: Where can I find official information?
A: Visit the Treasury website or ATO website for updates. Check the Parliament House website for bill progress .
Conclusion: Preparing for Australia's New Superannuation Era
The superannuation changes taking effect from 1 July 2026 represent a significant shift in Australia's retirement income system. While the Division 296 tax affects only a small percentage of Australians, its implications for those with large balances are substantial. The introduction of Payday Super will transform employer obligations, while higher contribution caps create new opportunities for many.
For most Australians, the key message is don't act in haste—wait for legislation to pass and seek professional advice tailored to your circumstances. For employers, act now to ensure payroll systems are ready for 1 July.
With the Senate due to consider the legislation in March 2026, the coming months will bring clarity. Until then, stay informed, review your situation, and prepare to act when the rules are final.
Key Dates Summary
| Date | Change |
|---|---|
| 1 July 2026 | Division 296 tax commences (if passed) |
| 1 July 2026 | Payday Super begins |
| 1 July 2026 | Expected contribution cap increases |
| 1 July 2026 | Personal income tax rate drops to 15% ($18,201-$45,000 bracket) |
| 30 June 2026 | ATO Small Business Super Clearing House closes |
| 1 July 2027 | LISTO expansion takes effect |
| 1 July 2027 | Personal income tax rate drops further to 14% |
0 Comments