Super Tax Reform – A Guide for High-Balance Holders

---

Follow us on LinkedIn for the latest industry updates and trending news.

Follow Wis Australia

On October 13, 2025, the ATO announced superannuation tax reforms focused on enhancing the fairness and sustainability of tax concessions. Targeting high-balance accounts with key adjustment rules, the reforms aim to align the superannuation system more closely with its original purpose of "supporting retirement" and are set to take effect on July 1, 2026.

Introduction: Who’s Affected?

• Core premise: Super balances below 3 million remain unaffected; those near/above 3 million need to act on the Better Targeted Superannuation Concessions (BTSC) policy.

• Brief note on Division 296 Tax: The revised framework prioritizes simplicity, fairness, and practicality following industry feedback.

Key Reform Changes

1. Taxable Earnings Adjustment

   1. Flaw of the 2023 original proposal: Unrealized gains (e.g., paper profits from unsold property/shares) were taxable, causing cash flow strains.

   2. Revised approach: Only realized earnings (cash income from asset sales, dividends, interest) are taxed, aligning with general Australian tax principles.

2. Two-Tier Progressive Tax System

   1. Tier 1 (3m–10m): 15% additional tax (30% total rate), indexed annually by $150,000 for inflation.

   2. Tier 2 (over 10m): 25% additional tax (40% total rate), indexed annually by 500,000 for inflation.

   3. Purpose: Prevent bracket creep and ensure equitable taxation.

3. Implementation Timeline Extension

   1. New start date: 1 July 2026 (first assessment in 2027–28 financial year).

   2. Impact scale: <0.5% of Australians affected at 3m threshold; <0.1% at 10m threshold.

Practice Case Studies

1. Case Megan (Tier 1, $4.5M Balance)

   1. Excess balance over 3M: 1.5M; annual realized earnings: $300K.

   2. Calculation steps:

      1. Proportion of excess balance: 1.5M ÷ 4.5M = 33.33%.

      2. Taxable earnings: 33.33% × 300K = 100K.

      3. Extra tax: 15% × 100K = 15K.

2. Case 2: Emma (Cross-Tier, $12.9M Balance)

   1. Excess balance breakdown: Tier 1 (7M), Tier 2 (2.9M); annual realized earnings: $840K.

   2. Calculation steps:

      1. Proportions: Tier 1 (7M ÷ 12.9M ≈ 54.26%), Tier 2 (2.9M ÷ 12.9M ≈ 22.48%).

      2. Allocated earnings: Tier 1 (54.26% × 840K ≈ 455,784), Tier 2 (22.48% × 840K ≈ 188,832).

      3. Extra tax: Tier 1 (15% × 455,784 ≈ 69K), Tier 2 (extra 10% × 188,832 ≈ 46K); total ≈ $115K.

Impact Analysis & Targeted Responses

1. Benefiting Groups

   1. Balances below $3m: Retain existing tax concessions with no changes needed.

   2. SMSF holders with property/unlisted assets: Elimination of unrealized gains tax reduces valuation burdens and cash flow risks.

2. Group Needing Strategy Adjustments

   1. Balances 3m–10m: Reassess after-tax returns and optimize asset allocation.

   2. Balances over $10m: Restructure portfolios (e.g., reduce high-tax assets) and plan asset disposal timing.

   3. Risk reminder: Draft legislation pending parliamentary approval; rules may change before 2026.

Actionable Steps for Tax Planning

1. Verify & Project Your Balance

   1. Check Total Super Balance (TSB) via MyGov.

   2. Forecast 2026 balance based on historical returns and future contributions.

   3. Critical: Aggregate SMSF and APRA fund balances for accurate assessment.

2. Consult Professionals & Optimize Strategies

   1. Liquidity management: Reserve cash to avoid forced asset sales for tax payments.

   2. Asset allocation: Shift from short-term high-tax assets to long-term low-tax investments.

   3. Timing of disposals: Complete sales pre-July 2026 or stagger disposals to smooth earnings.

3. Track Policy Updates

   1. Monitor 2026 draft legislation for threshold/tax rate changes.

   2. Reliable sources: ATO website, accounting firm insights, industry association briefings.