Key points

• Schedules 1-3 of the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 amend several Commonwealth statutes to reduce the tax concessions available to individuals with a total superannuation balance of more than $3 million. A further reduction would apply to individuals with a total balance of more than $10 million. The measure would apply from income years starting on 1 July 2026.
• Schedule 4 amends the low income super tax offset (LISTO) by increasing the income threshold from $37,000 to $45,000 and raising the maximum LISTO payment from $500 to $810. These amendments would apply from 1 July 2027.   
• The Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026 implements the measure in Schedules 1‑3. It is a separate Bill for constitutional reasons.
• The Government previously attempted to reduce tax concessions available to individuals with a total superannuation balance of more than $3 million through the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (the 2023 Bills). These Bills lapsed at the end of the 47th Parliament.
• The measure proposed in the current Bills differs in some respects from the previous Bills, including through proposing a further reduction of tax concessions available to individuals with total superannuation balances exceeding $10 million; by providing for both the $3 million and $10 million thresholds to be indexed to the Consumer Price Index (CPI); and removing the proposal to tax notional capital gains and losses.
• While regarding the new Bills as improving on the 2023 Bills, some professional bodies and self-managed superannuation fund representative organisations consider the measure is unnecessary, too complex, and creates inequitable outcomes. In contrast, the large superannuation sector supports the measure.
• At the time of writing, the Bills had not been referred to or reported on by any parliamentary committees.

Introductory Info

Date of introduction: 11 February 2026
House introduced in: House of Representatives
Portfolio: Treasury
Commencement:
The Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026 commences on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.
Sections 1 to 3 of the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 commence on Royal Assent. Schedule 1 commences at the same time as the Imposition Bill. Schedules 2 and 3 commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. Schedule 4 commences on 1 July 2027.

Purpose and history of the Bills

The purpose of the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 (the Bill) is to amend taxation and superannuation law to ensure that concessions within the system are better targeted and more closely aligned with the legislated objective of superannuation.

The Bill proposes two key changes.

Firstly, it would insert new Division 296 into the Income Tax Assessment Act 1997 (ITAA 1997), to reduce the tax concessions available to individuals with total superannuation balances exceeding $3 million. This would apply from income years starting on 1 July 2026.

Secondly, it would amend the low income super tax offset (LISTO) by increasing the income threshold from $37,000 to $45,000 and raising the maximum LISTO payment from $500 to $810. These amendments would apply from 1 July 2027.  

The purpose of the Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026 (the Imposition Bill) is to impose the additional tax on large superannuation balances.

The Government previously attempted to reduce tax concessions available to individuals with a total superannuation balance of more than $3 million through the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (the 2023 Bills). These Bills lapsed at the end of the 47th Parliament.

The measure proposed in the current Bills differs in some respects from the previous Bills, including through proposing a further reduction of tax concessions available to individuals with total superannuation balances exceeding $10 million; by providing for both the $3 million and $10 million thresholds to be indexed to the Consumer Price Index (CPI); and removing the proposal to tax notional capital gains and losses. A Bills Digest was prepared for the 2023 Bills and the present Bills Digest draws on its content as relevant. 

The proposed change to the LISTO was announced in October 2025 and has not been introduced previously.

Structure of the Bills

The Bill has 4 Schedules which amend existing Commonwealth statutes and are scheduled to commence as set out in Table 1 below:

Table 1 Schedules and commencement dates

Schedule 1 inserts new Division 296 into the Income Tax Assessment Act 1997 (ITAA 1997) and amends the Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act), the Governor-General Act 1974, the Income Tax (Transitional Provisions) Act 1997, the Judges’ Pensions Act 1968, the Parliamentary Contributory Superannuation Act 1948, the Superannuation Act 1976, the Superannuation Act 1990 and the Taxation Administration Act 1953 (TA Act) to insert references to new Division 296 of the ITAA 1997.	At the same time as the Superannuation (Building a Stronger and Fairer Super System) Imposition Bill 2026. The Imposition Bill will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.
Schedule 2 amends the definition of Total Superannuation Balance (TSB) in the ITAA 1997 and inserts a reference to the TSB value into the TA Act.	The first 1 January, 1 April, 1 July or 1 October after Royal Assent.
Schedule 3 amends the ITAA 1997 to clarify that Subdivision 293H of that Act overrides subsection 73(3A) of the Australian Capital Territory (Self-Government) Act 1988.	The first 1 January, 1 April, 1 July or 1 October after Royal Assent.
Schedule 4 amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to align the low income tax offset (LISTO) with broader income tax and superannuation settings.	1 July 2027.

The measures are presented in two Bills – an assessment Bill and an imposition Bill. This is because the Constitution requires that laws imposing taxation deal only with the imposition of taxation (section 55). Under section 6 of the Imposition Bill, Division 296 tax does not apply if the imposition of the tax on the individual exceeds the legislative power of the Commonwealth.

Background

The modern Australian retirement income system comprises three elements, which have become known as the three pillars:

• a publicly provided means tested age pension
• mandatory private superannuation saving and
• voluntary saving (including voluntary superannuation saving) (p. 65).

Compulsory superannuation was introduced in Australia in 1992. When it was first introduced, the Superannuation Guarantee was 3% of wages. While this was a big change, in November 1991, 71% of employed persons were covered by superannuation (p. 13). Over time superannuation was subject to various tax concessions (pp. 78-79). Until 2007 there were no limits on non-concessional (after tax) contributions to superannuation and so some people accumulated very large balances. In 2007, a limit of $50,000 on concessional contributions was also introduced. Changes have been made to both the concessional and non-concessional caps since 2007, but both are indexed. The transfer balance cap, introduced in 2017, restricts the amount that can be transferred into the tax‑free retirement phase.

There have been equity concerns about disparities in superannuation savings and earnings for some time. In 2013, the Labor Government proposed a 15% tax on superannuation income streams above $100,000. Treasury notes in its impact analysis for the current Bills, ‘the concession afforded to the earnings of high income earners is greater than the concession afforded to individuals on lower incomes … the top 20 per cent of income earners received around 55 per cent of the total benefit … in 2022-23.’ (Explanatory Memorandum (EM), pp. 76-77)

The Government’s policy intent in relation to superannuation is that it is designed to provide for a person’s retirement rather than acting as a wealth creation vehicle. Consistently with this, the Government has implemented an objective for superannuation in its Superannuation (Objective) Act 2024, as follows: ‘The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’ (subsection 5(1)).

The intention to change the concessional tax rate applied to earnings on superannuation balances over $3 million was announced by the Treasurer on 28 February 2023 and included in the 2023–24 Budget as the Better Targeted Superannuation Concessions measure (Budget Paper No. 2, p. 15). The Budget Paper stated the rationale for the measure as follows: ‘This reform is intended to ensure generous superannuation concessions are better targeted and sustainable.’ When introducing the 2023 Bills, the Assistant Treasurer advised that the change was expected to apply to less than 0.5% of Australians with a superannuation account.

In November 2023, the Government introduced the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (the 2023 Bills). As noted in the Bills Digest for the measure, the Bills were extensively criticised by stakeholders, in particular for a lack of indexation of the $3 million threshold, and the proposed taxation of notional capital gains and losses.

Committee consideration of the 2023 Bills

In May 2024, the Senate Economics Legislation Committee reported on its inquiry into the 2023 Bills. The Committee said it ‘strongly supports the reforms to superannuation tax concessions that will ensure they are fairer, more sustainable, and better targeted’ (p. 48). It noted that only a very small proportion of account holders would be affected (p. 49). It supported the provisions of the Bills (including the lack of indexation of the $3 million threshold and the taxation of unrealised gains) and recommended (p. 51) that the Bills be passed.

Coalition Senators strongly opposed the Bills, characterising the measure as a broken election promise and an unprecedented tax on unrealised capital gains. Coalition Senators criticised the lack of indexation of the $3 million threshold, stating that it would ‘capture hundreds of thousands of Australians, particularly young Australians, into the future’ (p. 53).

Greens Senators criticised the scale and direction of Australia’s current superannuation concessions, but argued the Bills were far too modest and would not meaningfully disrupt what they characterised as a system functioning as ‘Australia’s premier tax haven for wealth accumulation’ (p. 81).

The Greens recommended:

• that the threshold for the reduced tax concessions be lowered from $3 million to $2 million, indexed in line with inflation (p. 82)
• the Government prepare comprehensive legislation to restore superannuation’s purpose to support working people’s dignified retirement by removing and reducing all the tax settings that disproportionately benefit the highest income earners and asset owners (p. 85)
• the Government ensure the actuarial formula for taxing defined benefit schemes does not result in women being taxed higher than men as a result of their longer life expectancy (p. 86)
• the Government address the concerns regarding the exemption on the prohibition for super funds to borrow to finance investments in section 67A of the Superannuation Industry (Supervision) Act 1993 (limited recourse borrowing arrangements) on a prospective basis (p. 90)

The 2023 Bills lapsed on prorogation of the 47th Parliament.

Changes to the measure

On 13 October 2025, the Government announced changes to the Better Targeted Superannuation Concessions measure, including an additional threshold of $10 million; indexation of the $3 million and $10 million thresholds; and the restriction of the tax to realised earnings.

On 19 December 2025, Treasury opened consultation on a revised exposure draft, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025. Treasury also provided guidance on proposed regulations to be made under the Bill. Consultation closed on 16 January 2026. Treasury published 83 responses. The Bill as introduced largely reflects the exposure draft, with some adjustments in response to stakeholder feedback.

Changes to the LISTO

On 13 October 2025, the Government announced it would introduce changes to the Low Income Superannuation Tax Offset (LISTO), by increasing the income threshold from $37,000 to $45,000 and the maximum LISTO payment from $500 to $810.

Key changes from the 2023 Bills

The key changes between the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 (the 2026 Bill) are:

• the 2026 Bill explicitly removes the taxation of unrealised gains, switching instead to a realised‑earnings base
• the 2026 Bill adds a new threshold of $10 million, with a higher nominal tax rate of 40% applying to earnings above that level
• the $3 million (and $10 million) thresholds are now indexed, consistent with the existing approach for the transfer balance cap, with the aim of ensuring the tax does not apply to more people over time simply due to inflation
• there is a one‑off adjustment (taxpayers must opt in) to remove pre‑implementation gains from Division 296 earnings
• Division 296 applies in the year of death if the person dies on or after 1 July 2027
• the 2026 Bill incorporates changes to the LISTO.

Policy position of non-government parties/independents

In October 2025, the Australian Financial Review reported that the Coalition was poised to vote against Labor’s modified proposal, on the basis that supporting the policy would contravene its renewed commitment to be the party of lower taxes.

On 11 February 2026, the Greens’ economics spokesperson Senator Nick McKim told the ABC that the Greens had not come to a ‘final position’ but that there was a pathway for ‘a constructive approach’. According to the report:

Senator McKim said the Greens were working up negotiating proposals. A spokesperson emphasised these had not been finalised, but that one option being considered was a 45 per cent tax instead of 40 per cent on balances above $10 million.

By lining up with the top income tax rate of 45 per cent, this would effectively mean a proportion of earnings above $10 million receive no tax concession — a proposal that would function as an effective "cap" on concessional super as some have advocated.

At the time of writing, there appear to be no publicly available statements from the other parties or the independents concerning the Bill.

Key issues and provisions

Overall stakeholder views

While several stakeholders regard the revised measure as an improvement over its predecessor, professional bodies such as the SMSF Association (SMSFA), the Institute of Financial Professionals Australia (IFPA), the Tax Institute (TIA) and Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants, (the joint bodies) considered that the exposure draft Bill was unnecessary, too complex, and would create inequitable outcomes. In contrast, the Association of Superannuation Funds of Australia (ASFA) (p. 2) and the Australian Council of Trade Unions (ACTU) (p. 4) support the amended Division 296 measure. The Financial Services Council (FSC) considered the revised framework ‘broadly workable in concept’ (p. 1).

Tiered reduction in tax concessions

Item 14 of Schedule 1 inserts proposed Division 296 – Better targeted superannuation concessions into the ITAA 1997, which will impose a two-tier reduction in the tax concessions available for individuals with a total superannuation balance (TSB) above $3 million, from the 2026-27 tax year onwards:

• earnings on the portion of a member’s TSB above $3 million and up to $10 million would be taxed at an additional 15% (in addition to the existing 15% tax on the fund) – an overall nominal tax rate of 30% on a member’s taxable superannuation earnings (TSE)
• earnings on the portion of a member’s TSB above $10 million would be taxed at an additional 25% (on top of the existing 15% fund tax) – an overall nominal tax rate of 40% on a member’s TSE.

The lower threshold is referred to as the large superannuation balance threshold (LSBT) (proposed section 296-30) and the higher threshold is referred to as the very large superannuation balance threshold (proposed section 296-35).

Some stakeholders (eg ASFA (p. 2)) supported the tiered approach. Pitcher Partners noted its greater progressivity at the top end and said: ‘The move to a tiered, indexed structure provides greater fairness and predictability, albeit at the cost of higher marginal rates for ultra-high-balance members’.

Under Schedule 1, items 14 and 17 to 22, the $3 million threshold would be indexed to the Consumer Price Index (CPI) in $150,000 increments, while the $10 million threshold would be indexed to the CPI in $500,000 increments.

The tax will only apply to realised earnings—such as interest, dividends, rent and realised capital gains—replacing the earlier total-super-balance change method. This means the Government will raise less revenue than originally expected, although the introduction of the $10 million tier may offset the revenue impact of removing the unrealised gains component.

Calculating taxable superannuation earnings

According to the Explanatory Memorandum (EM), paragraph 1.33, an individual has taxable superannuation earnings (Schedule 1, item 14, proposed subsection 296-40(1) of the ITAA 1997) for an income year if their TSB at the end of the income year, or just before the start of the year, is greater than the $3 million threshold and their superannuation earnings for the year is greater than nil. The approach of using the greater of the individual’s TSB at the end of the year or their TSB just before the start of the year (the ‘higher of two balances’ approach, which does not apply for the first year of the tax) is an integrity measure designed to stop people avoiding the tax by drawing down their superannuation. The greater of the individual’s TSB at the end of the year or their TSB just before the start of the year is referred to as the TSB reference amount (proposed subsection 296-40(2)).

In its submission on the exposure draft Bill, the SMSFA argued that using the greater of the opening or closing TSB creates inequitable and unintended outcomes—for example, where balances drop due to market losses or collapse of investments, or where a temporary spike near year‑end can penalise a member twice (in the year of the spike and the following year). It recommended using a fixed test time instead (pp. 3-4).

The IFPA said that ‘only [the] closing total superannuation balance (TSB) should be used for Division 296 purposes. The “higher of two balances” approach produces unfair outcomes by taxing notional balances rather than actual circumstance and must be adjusted to account for losses, insurance proceeds, excess contributions and other events outside a member’s control.’ (p. 1)

Definition of TSB and TSB value

According to the EM (paragraph 1.47), all Australian superannuation interests are counted in an individual’s TSB. Each superannuation interest has a TSB value  and an individual’s TSB is the sum of the TSB values of each of their superannuation interests.

TSB value is defined in proposed section 307-230A (inserted by item 6 of Schedule 2 to the Bill) as being determined either by a method or value prescribed in regulations or, if there is no prescribed method or value, by using what is colloquially known as the ‘withdrawal benefit’ for the interest (which is not applicable to defined benefit interests). This is the total amount of superannuation benefits that would become payable if the individual had the right to cause the interest to cease at that time and had caused the interest to cease at that time.

Proposed subsection 307-230A(2) sets out several matters that the regulations may take into account in specifying a value or method. Under proposed paragraph 307-230A(2)(c), this extends to a defined benefit interest. Proposed subsection 307-203A(3) allows the relevant Minister to approve a legislative instrument for the methods or factors used to determine the TSB value.

Liability for the tax

As set out above, item 14 of Schedule 1 inserts proposed Division 296 into the ITAA 1997. Within new Division 296, proposed sections 296-20 to 296-25 create exceptions to liability for child recipients and persons who receive structured settlement contributions. Otherwise, an individual will be liable to pay the tax if they have taxable superannuation earnings.

In relation to structured settlements, the SMSFA said ‘there is no similar concession for individuals who have received TPD [Total and Permanent Disability] insurance proceeds via superannuation. … It is our view that either, impacted individuals be excluded from Division 296 altogether, or that an adjustment be made to their TSB value to reflect the amount of insurance proceeds received.’ (p. 3)

The SMSFA also argued that: ‘Similar situations can also arise following the death of an insured member in the fund. That is, the proceeds of a life insurance policy owned by the trustee(s) of the fund, which are allocated to the deceased member’s account, can often result in a large increase in the deceased member’s balance.  … To avoid these unintended situations from arising, a deceased member’s TSB should be adjusted by the amount of life insurance proceeds received.’

The TIA (p. 4) said it agreed with the structured settlement proposal but considered that it should be extended to recipients of TPD and terminal illness benefits.

To determine whether a person has taxable superannuation earnings as set out in proposed section 296-40, it is first necessary to subtract the LSBT from the individual’s TSB reference amount, divide by the TSB reference amount and multiply by 100. For example, if a person has a TSB reference amount of $5 million at the end of a relevant income year and their total superannuation earnings for that year are $50,000, the proportion of their TSB above the threshold would be 40% (($5 million - $3 million)/$5 million).

This percentage is then multiplied by the amount of superannuation earnings for the income year to provide the amount of taxable superannuation earnings. In the example above, the person’s taxable earnings for Division 296 purposes would be $20,000 (40% of $50,000). This amount would be taxable at 15% and the person would have a Division 296 tax liability of $3,000 for the year.

If an individual’s TSB is greater than the very large superannuation balance threshold (VLSBT) of $10 million (proposed section 296-35) they will also have a very large superannuation balance earnings component. Under proposed section 296-45, to work out the total amount of this component for an income year, subtracting the VLSBT from the individual’s TSB reference amount, divide by the TSB reference amount and multiply by 100. For example, if a person has a TSB reference amount of $12 million at the end of a relevant income year and their total superannuation earnings for that year are $100,000, the proportion of their TSB above the LSBT would be 75% (($12 million - $3 million)/$12 million). The proportion of their TSB above the VLSBT would be 16.67% (($12 million - $10 million)/$12 million).

The person’s Division 296 tax would comprise 2 parts:

• for the proportion above the LSBT, the person would have taxable superannuation earnings of $75,000 (75% of $100,000)
•  for the proportion above the VLSBT, the person would have taxable superannuation earnings of $16,667 (16.67% of $100,000).

The amount of $75,000 relating to the proportion above the LSBT will be taxed at 15%, resulting in tax of $11,250. The amount of $16,667 relating to the proportion above the VLSBT will be taxed at an additional 10%, resulting in tax of $1,666.67. The person’s total Division 296 tax liability for the year would be $12,917.

For the purposes of proposed sections 296-40 and 296-45, a person’s TSB is taken to be nil after death: proposed section 296-50.

Calculating total superannuation earnings

The amount of a person’s total superannuation earnings for an income year is generally the total of the person’s relevant superannuation earnings for each of the person’s superannuation interest and each superannuation interest that supports an income stream: proposed subsection 296-55(1). Daniel Butler of DBA Lawyers has noted: ‘an SMSF member may have an interest in a large APRA fund, a retirement savings account and an SMSF, and the attributable earnings for that member from each fund need to be aggregated by the ATO and a Div 296 assessment issued.’

Calculating Division 296 fund earnings

Daniel Butler has noted that Div 296 earnings are broadly calculated as follows:

• start with the amount of the fund’s relevant taxable income for the income year (or loss)
• deduct assessable contributions
• add back net exempt current pension income (ECPI) (broadly, exempt pension income less deductions under section 8-1 of the ITAA 1997 and
• deduct any non-arm’s length income.

Franking credits and foreign income tax offsets

Paragraph 1.66 of the EM refers to the fund’s relevant taxable income as including grossed-up franking credits and foreign income tax offsets. Paragraphs 1.67 and 1.69 to 1.70 explain:

… Including the grossed-up amount in Division 296 ensures the gross company profit is subject to the new headline tax rate for superannuation earnings. The superannuation fund receives the full benefit of the franking credit offset, fully refunding the tax paid by the company to prevent any double taxation…

Including the foreign income upon which foreign tax has been paid also reflects the intended operation of Australia’s double tax agreements, which aim to reduce double taxation by fully or partially reducing the tax paid in Australia on foreign income with the foreign income tax offset. Including the gross amount of foreign income in Division 296 fund earnings is necessary to ensure that earnings from foreign income sources are subject to the appropriate headline tax rate for superannuation earnings…

Foreign tax offsets do not reduce Division 296 fund earnings as these do not form part of the income that a superannuation fund’s concessional tax rates are applied to – consistent with the general foreign tax offset rules, the offsets are only available to be used by the legal entity that owns the relevant income.

The SMSFA submission on the exposure draft of the Bill notes the intention of the policy is to tax earnings above $3 million at an additional 15% and earnings above $10 million at an additional 25% (p. 5). It argues:

However, including the grossed-up amount of dividends received (i.e. the dividend received plus the franking credit) and foreign tax offsets as earnings inflates the true value of “actual” earnings and results in effective tax rates which, we feel, exceed those intended under this measure.

This outcome is particularly acute for pension funds which receive foreign income tax offsets as these funds do not receive the benefit of these offsets for ordinary income tax purposes.

CPA Australia, CA ANZ, Institute of Public Accountants (the joint bodies) stated (p. 3):

This is an unfair outcome which ignores the purpose of franking credits. The purpose of such credits is to adjust the tax rate applying to dividends and other distributions (for example from trust or managed investment scheme distributions) to the tax rate applying to the relevant taxpayer.

Not all commentators were convinced that there was a flaw in the Bill regarding franking credits. According to Accounting Times:

Simon Gow, Grant Thornton’s national head of self-managed superannuation, said the draft Div 296 bill correctly based the tax on individuals’ “grossed-up dividends” rather than cash earnings, consistent with other parts of the tax system.

“It is standard in Australian tax for grossed‐up dividends to form part of the taxable base regardless of whether the taxpayer receives the full credit as a refund,” Gow told Accounting Times.

“Individuals, SMSFs, and companies are all taxed on the grossed‐up dividend, not the cash component, even though some may not get the entire credit back.” …

“Because full franking credits continue to be available at the fund level, only the marginal additional tax is payable, and no tax‐on‐tax or double‐taxation outcome arises.”

The TIA stated (p. 6):

We consider that the relevant income for Division 296 should not be grossed up for foreign income tax offsets that are disallowed in the superannuation fund under the [foreign income tax offsets] cap, as this could result in double taxation for the individual under Division 296 and potentially violate double tax treaty obligations. This issue should be clarified. Further, we are of the view that a credit should be allowed against Division 296 tax on relevant income that is ECPI [exempt current pension income] for which foreign tax has been paid by the fund, to prevent further instances of double taxation.

Requirement for SMSF actuarial certificate

For large APRA-regulated funds, taxable superannuation earnings (TSE) would be attributed on a ‘fair and reasonable’ basis, with ‘fair and reasonable’ to be defined in regulations (proposed section 296-35(3) of the ITAA 1997).

For self-managed super funds (SMSFs), it is envisaged the regulations would require the SMSF to present an actuarial certificate every income year confirming the attributable TSE for each in-scope member based on a proportionate approach, in a similar manner to how exempt current pension income (ECPI) is currently calculated (p. 26).

The SMSFA argued the requirement should not apply to single‑member funds as ‘the risk of selectively attributing specific fund assets to in-scope members in the fund does not exist’. (p. 6). The joint bodies (p. 2) agreed with this view. The SMSFA also claimed (p. 7) that the attribution methodology to be used by small funds, which would be based on the member’s time-weighted share of the fund over the relevant income year, would give rise on occasions to unfair outcomes, for example when a member joins part way through the year.

TSB measured only at 30 June 2027 for 2026-27

Schedule 1, item 24, proposed subsection 296‑1(2) of the Income Tax (Transitional Provisions) Act 1997 (ITTP Act) introduces a transitional rule for the 2026-27 income year.

The EM states at paragraph 1.219:

Transitional arrangements apply for the first year of the Division 296 tax. For the 2026‑27 income year, whether Division 296 tax is payable, and the amount of that tax payable, is determined solely by reference to the TSB at the end of that income year.

This means that members can reduce their balances before 30 June 2027 and avoid being captured. After the transitional year, if the starting balance exceeds the relevant threshold, a subsequent withdrawal will not assist.

One‑off CGT cost base reset (optional election)

Under Schedule 1, item 24, proposed sections 296‑50 and 296‑55 of the ITTP Act, small superannuation funds can elect to reset the cost base of assets to their 30 June 2026 market value for Division 296 purposes only. The election is voluntary (i.e. it must be actively chosen) and it applies to all assets (not asset‑by‑asset). The election is irrevocable and must be made by the small superannuation fund’s 2026–27 tax return due date.

Several submissions criticised the requirement that the cost‑base reset must be applied to all assets, rather than allowing trustees to elect the reset asset‑by‑asset. For example, the SMSFA stated (p. 8):

Requiring that the fund trustee’s cost base adjustment choice be applied to all CGT assets held by the trustee will result in unfair outcomes where a particular fund asset’s market value at 30 June 2026 is less than its cost base ….

In our view, to improve the fairness of these CGT adjustment provisions, the proposed cost base adjustment method for small superannuation funds should provide that the cost base (for Division 296 purposes) be adjusted, at 30 June 2026, to the greater of:

• The asset’s market value at 30 June 2026, or
• The asset’s CGT cost base.

IFPA argued (p. 5) the proposed rule was unfair, and that trustees should be allowed to choose which assets to reset, similar to the 2017 transfer balance cap transitional rules (p. 2), or alternatively allow a rule where the reset value is the greater of cost base or market value to avoid penalising members. The joint bodies (p. 5) supported an asset-by-asset approach.

The TIA pointed to the disparity in treatment of APRA funds and SMSFs. It said (p. 8):

SMSFs can opt in to adjust the cost base of all fund assets to their market value as at 30 June 2026 (cost base adjustment method), while large APRA funds are required to adjust their actual realised capital gains for the first four years (factor method). All funds should have the option to choose either approach to prevent potential detriment to members, particularly affecting wrap-style superannuation funds that manage specific assets with unique cost bases for each account, although this issue extends to master funds as well.

Deceased members

Under Schedule 1, item 24, proposed subsection 296-1(3) of the ITTP Act:

You are not liable to pay Division 296 tax for the 2026-27 income year if you die on or before the last day of the year.

This approach does not apply for subsequent financial years.

Several stakeholders, including the IFPA and the SMSFA, indicated that Div 296 could operate like a ‘death tax’ and that its provisions were unworkable and inequitable. The IFPA said (p. 4):

The former proposed legislation excluded members from Division 296 in the year they died (unless they died on 30 June). This was a sensible approach that should be retained. We note the current draft contains this approach only for the 2026-27 year.

In practice, Division 296 assessments may be issued many months after death, often after probate has been granted and estate assets have already been distributed. Executors may therefore be faced with a tax liability at a point in time when they have no remaining assets under their control. …

Further inequity could arise where an executor receives the Division 296 tax liability in the situation where the death benefits are not paid to the estate but rather to a non-beneficiary of the estate. For example, Person A dies leaving all his superannuation to second spouse B. A’s estate goes to his two children from his first marriage – C and D. In this example, the Division 296 tax liability will be borne by C and D, even though the superannuation death benefits went to B. This is obviously an inequitable result.

Further complexity arises where death benefits are paid partly as a pension to a surviving spouse and partly as a lump sum, including to other beneficiaries. This could result in individuals who have never previously been subject to Division 296, such as surviving spouses whose balances exceed $3 million for the first time, being unexpectedly brought within the tax net as a direct consequence of death. Death is also a point at which significant capital gains are often realised, potentially inflating Division 296 “earnings” in the final year and exacerbating the unfairness of the outcome.

The TIA said (p. 5):

In essence, we consider that a deceased estate should not incur Division 296 tax unless the payment due date occurred prior to death, as the deceased individual can no longer benefit from their superannuation account and should therefore not be subject to taxation. Typically, the account balance would be distributed among the death benefit dependents, who we consider should be granted a 12-month period to address any excess above the $3 million or $10 million cap, similar to the allowances for TBC excess under Table item 2, subsection 294-25 (1) of the ITAA 1997.

Daniel Butler was quoted as saying:

…. the change will have the effect of accelerating the time that Div 296 tax will be paid by a surviving spouse given the surviving spouse will be tested based on the higher of the start or the end of the financial year…

“For example, if dad dies on 1 January 2028 (after the transitional year of 2026/27) with an automatically reversionary pension in favour of mum and each have $2 million in super, mum will be assessed to Div 296 tax in respect of the 2027/28 financial year given she will have more than $3 million at the end of that financial year provided she also derives some superannuation earnings in respect of her interests which includes the reversionary pension transferring to her upon dad’s death,” he said. ..

Moreover, he said, [Schedule 1, item 14, proposed paragraph 296-55(1)(b) of the ITAA 1997] of the new draft legislation also confirms the fact that a person’s total superannuation earnings includes earnings in relation to an automatically reversionary pension.

A commentator, Alvia CIO Josh Derrington, has said the proposed changes to Division 296 can feel like ‘a stealthy inheritance tax’ once capital gains, death benefits and balance thresholds interact.

Mr Derrington is quoted in an article in the Australian Financial Review on 12 February 2026. The article asserted that the new tax is ‘making the cost of dying with money in super excruciatingly expensive if you’ve got no surviving spouse, and it’s even making it expensive if you’ve got a surviving spouse’. This is:

Because when somebody dies, their super fund (especially a self-managed super fund) typically has to sell assets such as property or shares to pay out the death benefit to beneficiaries. Under current rules, that sale triggers 10 per cent capital gains tax within the fund.

But under Division 296, if a member of a fund has more than $3 million in super, a tax of as much as 30 per cent will apply over that threshold. If the balance exceeds $10 million, the tax could be as high as 40 per cent.

Moreover, consider a couple who had $2.5 million each in super. Neither is anywhere near being individually liable for the new tax. Before the new tax, if the wife died and her $2.5 million pension went to her husband (who also had $2.5 million), he would have had a $5 million mostly tax-free pension for a time (at least some of this money would need to go back into an accumulation account after 12 months).

But that changes dramatically under Division 296.

Suddenly, he is liable for an extra tax on all future earnings and asset sales on the proportion of his balance above $3 million.

Excluded superannuation earnings

Schedule 1, item 14 inserts subsections 296-55(2) and (3) into the ITAA 1997 under which certain earnings are excluded from taxable superannuation earnings and are known as Division 296 excluded interests. These relate to State higher level office holders and Commonwealth justices and judges.

Under two High Court rulings, Austin v Commonwealth (2003) 215 CLR 185 and Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272, the Commonwealth cannot impose tax on an interest in a ‘constitutionally protected fund’. These are funds which hold superannuation contributions on behalf of State government high-level office holders.

The Commonwealth is also unable to impose tax in respect of an interest in a superannuation fund established under the Judges' Pensions Act 1968. This is by virtue of section 72(iii) of the Constitution.

Proposed subsection 296-55(3), table items 3 and 4 provide that earnings from the interests of ACT and NT Supreme Court judges are also excluded.

Also, table item 6 in proposed subsection 296-55(3) an interest in a non-complying superannuation fund is not subject to Division 296 tax. This is because such funds are already taxed at the highest marginal rate and do not receive earnings tax concessions.

Such interests will still need to be counted as part of the person’s TSB. This is to ensure that earnings on any other superannuation interest that the person holds outside of their excluded fund is within the scope of the tax: EM, paragraphs 1.126 and 1.136.

Imposition Bill

Under clauses 4 and 5, the Imposition Bill imposes the additional tax of 15% on superannuation earnings that correspond to the percentage of a person’s total superannuation balance that exceeds the large superannuation balance threshold for a year of income, and 25% on that portion that exceeds the very large superannuation balance threshold.

Clause 6 is a severability provision. This is required so that the tax does not apply if its imposition on a person exceeds the legislative power of the Commonwealth.

Changes to the LISTO

According to ASFA:

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.

Currently, to be eligible for LISTO, an individual must have an adjusted taxable income (ATI) of $37,000 or less. There is also a maximum LISTO amount of $500 for an income year. Paragraph 2.3 of the EM explains:

Over recent years, LISTO settings have remained the same while other aspects of the tax and superannuation system have changed. This means that some low income earners receive little or no concessional treatment on their superannuation contributions.

In short, the amendments would increase the upper income threshold for the LISTO and raise the maximum refundable offset. The changes would take effect from 1 July 2027.

Paragraph 12C(1)(b) and subparagraph 12C(2)(c)(i) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (the Co-contribution Act)  refer to the current eligibility threshold for the LISTO as $37,000. Item 1 of Schedule 4 to the Bill amends these provisions so that rather than referring to a specific figure, the provisions will refer to the lowest income tax threshold (after the tax free threshold) as set out in Part I of Schedule 7 to the Income Tax Rates Act 1986. This means that, in 2027-28, any person with an ATI not exceeding $45,000 (and who meets the other LISTO criteria) will be eligible for the LISTO.

Also under Schedule 4, items 2 and 3 would amend paragraph 12E(2)(b) and insert proposed subsection 12E(3A) of the Co-contribution Act to remove the reference to $500 as the maximum LISTO amount and insert a formula to calculate that amount. The calculation would refer to the LISTO eligibility threshold amount, the superannuation guarantee charge percentage, and the standard 15 per cent tax rate for concessional contributions. This means that, for 2027-28, the maximum LISTO amount will be $810.

ASFA supports the proposed change, stating:

Low income earners have long been unfairly disadvantaged by the delayed updates to the thresholds and maximum amount. The announced changes to address this are a positive measure for superannuation fund members (p. 2).

AustralianSuper (p. 4) and Cbus Super (pp. 1-2) also supported the amendments to the LISTO.

Glossary

Abbreviation	Definition
ITAA 1997	Income Tax Assessment Act 1997
LISTO	Low Income Superannuation Tax Offset
LSBT	Large superannuation balance threshold
SMSF	Self-managed super fund
TSB	Total superannuation balance
TSE	Taxable superannuation earnings
VLSBT	Very large superannuation balance threshold