Major Update: Labor's Revised Superannuation Tax Policy Announced

The Australian Labor government has announced substantial revisions to its controversial superannuation tax reform, addressing two years of stakeholder feedback. Here's what these significant changes mean for Australian citizens.

The Core Reform: What's Changing

The government confirmed it will proceed with taxing earnings on large superannuation balances at higher concessional rates, but with critical modifications that address the main criticisms of the original proposal.

From July 1, 2026, there will now be a two-tiered system:

• Earnings on balances between $3 million and $10 million will be taxed at 30% (up from the current 15%)

• Earnings on balances exceeding $10 million will be taxed at 40%

The Game-Changing Updates Announced Today

Indexation: Both the $3 million and $10 million thresholds will now be indexed over time, aligned with the Transfer Balance Cap. This addresses the most significant criticism of the original policy—that inflation would eventually push middle-income Australians into the higher tax brackets.

Realised vs Unrealised Gains: The tax will now only apply to realised earnings, not unrealised capital gains. This is a major technical shift that removes one of the policy's most controversial aspects. Treasury will consult on implementation details for calculating future realised gains.

Implementation Delayed: The start date has been pushed back one year to July 1, 2026 (from the original July 1, 2025), allowing time for consultation and legislative preparation.

Enhanced Support for Low-Income Workers

In a move that demonstrates the government's commitment to fairness, the low-income superannuation tax offset (LISTO) will receive a substantial boost:

• Increasing from $500 to $810 (a $310 increase)

• Eligibility threshold raised from $37,000 to $45,000

• Taking effect from July 1, 2027

This change will benefit 1.3 million Australians, approximately 60% of whom are women, bringing total LISTO recipients to 3.1 million. Workers earning between $28,000 and $45,000 could see an average LISTO payment increase of $410, potentially translating to around $15,000 additional retirement savings over a career.

Who Is Affected?

The policy continues to affect less than 0.5% of all Australians—fewer than 80,000 people. The introduction of the $10 million threshold with a higher 40% rate makes the policy even more targeted toward the very wealthiest superannuation holders.

For context: there are 14 times as many people who will benefit from the boosted LISTO as there are people with over $3 million in superannuation.

Understanding the Tax Mechanics

The additional tax only applies to earnings on the portion of balances above the thresholds, not the total balance. For example:

• Someone with a $5 million balance pays 15% on earnings from the first $3 million

• 30% on earnings from the $2 million above that threshold

• Someone with $12 million pays 15% on the first $3 million, 30% on the next $7 million, and 40% on the final $2 million

Importantly, these rates still represent concessional treatment—even at 40%, super holders benefit from substantially lower tax rates than ordinary income tax.

Why These Changes Matter

For Most Australians: If your superannuation balance is below $3 million (or $6 million as a couple), nothing changes. You continue to receive the standard 15% concessional tax rate on earnings.

For Low-Income Workers: The enhanced LISTO provides meaningful additional support, ensuring fairer tax concessions that align with the government's stage three tax cuts coming in 2027.

For High-Balance Holders: The indexation of thresholds provides certainty and removes the risk of bracket creep affecting future generations. The shift to taxing only realised earnings addresses legitimate concerns about liquidity and paper losses.

The Policy Context

Treasurer Jim Chalmers emphasized that "the original model was the best option identified at the time, but we have taken the decision to adjust the model to recognise the views we have heard since then."

The government maintains this reform is essential because superannuation tax concessions cost the budget more than $55 billion annually and are projected to exceed Age Pension costs in the 2040s. The reforms aim to maintain concessional treatment while ensuring it's provided more equitably and sustainably.

Budget Impact

The changes will cost approximately $4.2 billion over the forward estimates, largely due to the one-year delay. However, in the first full year of operation (2028-29), the package is projected to deliver net savings of around $1.6 billion, including the cost of increasing LISTO.

Implementation Timeline

• Now to 2026: Consultation with superannuation industry and stakeholders on implementation details

• 2026: Government to introduce legislation as soon as possible

• July 1, 2026: New tax rates on large balances commence

• July 1, 2027: Enhanced LISTO takes effect

What You Should Do

If you have under $3 million in super: Continue as normal. These changes don't affect you, and the LISTO increase may even benefit you if you're a low-income earner.

If you're approaching or exceeding the thresholds: Consult with a financial adviser about the implications for your retirement planning and any potential restructuring strategies.

For everyone: Stay informed as legislation progresses through Parliament and implementation details are finalised through consultation.

The Bottom Line

Today's announcement represents a significant recalibration of the government's superannuation tax reform. By introducing indexation, limiting tax to realised earnings, and creating a two-tiered system targeting the ultra-wealthy, the government has addressed the primary criticisms while maintaining its commitment to making the superannuation system more sustainable and equitable.

The substantial increase to LISTO ensures that reforms benefit far more Australians than they affect, supporting the government's broader objective of helping low-income workers "earn more, keep more of what they earn and retire with more too."

Information current as of October 14, 2025. For personalised advice, consult a qualified financial adviser.