The 6 Reforms Reshaping Super and Property. New Div296 Explained | EP110

Australia’s superannuation tax reform has finally landed, overturning a whole series of previous assumptions, and it will affect every Australian. Some people are happy; others are disappointed. Especially for high-net-worth individuals and property investors, this is the most important tax change in recent years. The entire logic of property investing across Australia will shift with it. This policy will become a powerful driver behind another round of price growth for mid- and lower-end properties. So how exactly is this policy defined? Compared with the earlier proposal, what are the six major changes? Who will feel the impact most? Under the new rules, how can people investing through superannuation and self-managed super funds achieve higher returns?

Superannuation Tax — Division 296

On 13 October, the Treasurer called a sudden press conference. What he announced is one of the most significant policy pivots in the history of Australia’s superannuation. Since February 2023, when the government first proposed an extra tax on super balances above $3 million, the idea has been like a bomb—triggering more than two years of heated debate across the financial world and the super industry. And now, the Treasurer has made a major concession. The policy contains six core changes.

First—and this is the crucial one—the government has completely abandoned the plan to tax unrealised capital gains. What does “unrealised” mean? It’s when your assets have gone up in value but you haven’t sold them yet. The original proposal wanted to tax that “paper wealth.” That rule drew pushback from almost everyone—from farmers to property investors, from self-managed super fund holders to large funds—all warning it would create a liquidity crunch. Thankfully, that plan has been dropped. The current method of taxing realised gains will remain.

Second, the government is introducing a brand-new two-tier tax rate. The portion of a balance between $3 million and $10 million will see the rate lifted from 15% to 30%. Any balance above $10 million will be taxed at a striking 40%.

Third, both thresholds—the $3 million cap and the newly set $10 million cap—will be indexed to inflation. In other words, these thresholds will rise with the balance caps, so ordinary Australians aren’t dragged into higher tax brackets just because of inflation. The $3 million cap increases by $150,000 per year—about 5%—and the $10 million cap increases by $500,000 per year.

Fourth, the start date is pushed back a full year—from 1 July 2025 to 1 July 2026—giving the industry more time to prepare and for consultation.

Fifth, the Low Income Superannuation Tax Offset (LISTO) will jump from $500 to $810, and the eligibility threshold will lift from $37,000 to $45,000 in annual income. This change begins on 1 July 2027. It will benefit 1.3 million Australians, 60% of whom are women. According to the Treasurer, it could add an average of $15,000 to the retirement savings of those who qualify.

Sixth, the superannuation of federal and state judges will continue to enjoy the current constitutional tax exemption.

The first three points are the ones most relevant to us: only taxing realised capital gains, introducing a two-tier rate, and indexing the two balance caps to inflation. The only part not addressed in this announcement is how capital gains will be discounted for tax purposes. Under today’s rules, if an asset is held for more than 12 months, the tax rate on the gain receives a one-third discount, dropping from 15% to 10%. We don’t know how this rule will change. If the capital gains discount is removed, or if different discounts apply to the $3 million and $10 million tiers, the impact on long-term holders could be unpredictable. For example, if the discount were to be abolished after 1 July 2026, should you sell before that date to lock in the benefit, then decide the next step?

Where the new law is up to

So, has the new policy been legislated? The answer: not yet. For now the government has only announced the policy; there’s still a fair distance to go before it becomes law. Let’s set out the timeline clearly. Back in February 2023, when the current government first announced the proposal, the Treasury drafted the bill.

It was introduced to Parliament in 2023, but it still hasn’t passed. Why? Because the resistance has been enormous. First, the government needs a majority in the House of Representatives—easier for a Labour government, since they hold a majority there. The real challenge is the Senate. Australia’s Senate is powerful and can block almost any bill, and the Labour Party does not have a majority there. That means they must secure support from the Greens, independents, or the Liberal Party to get it through. The original plan, because of the unrealised gains tax, had almost no support. After the major adjustments announced on 13 October, the situation may change.

Here’s what happens next: Treasury will undertake further industry consultation before 2026—this is also why the start date has been delayed to 1 July 2026. The consultation will focus on how best to calculate realised gains in future and how to attribute those gains to super members. Then, the revised bill will be reintroduced to Parliament in 2026 for debate and a vote. If all goes well, it could pass in the first half of 2026 and take effect on 1 July 2026. But political bargaining in Parliament is never simple, and any side could put new conditions or amendments on the table at the last minute. So, who will this new superannuation tax reform actually affect?

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Who Is Hit Hardest by the New Rules

The group affected by this new policy is actually very small, but the impact on them is significant. Let’s look at the numbers: across Australia, roughly 90,000 people have superannuation balances above $3 million. That’s less than 0.5% of all super members. Around 8,000 have balances above $10 million. But don’t be misled by how small those counts are, because the way the impact plays out is quite complex.

The first group hit hardest is holders of self-managed super funds (SMSFs). Class’s 2025 Benchmark Report shows that if this tax had applied in the 2024 financial year, members of the SMSFs they administer alone would have faced $941 million in tax bills, averaging $51,702 per person. Class manages about 35% of SMSF assets. Extrapolated across the whole SMSF sector, the annual tax burden would reach $2.7 billion—$400 million more than Treasury’s original estimate of $2.3 billion for the entire super industry. And if super assets grew by 10%, the tax take would jump to $3 billion.

The second group affected are those nearing retirement age who haven’t yet met a condition of release. Say you’re 50, your super balance is just over $3 million, and your assets are growing quickly—you can’t withdraw early to avoid the tax, yet you still have to pay extra tax each year. That’s a serious hit to your retirement plan.

The third group are couples jointly running an SMSF. If the wife’s balance exceeds $3 million and the husband’s balance is only $1 million, they’re in the same fund; when the wife needs to draw from the fund to pay the tax, it can also affect the husband’s retirement savings. So how do you reduce the impact? A few strategies are popular in the industry right now. First, investment bonds—these products are taxed internally at up to 30%, withdrawals after 10 years are not taxed personally, and they don’t count towards super balances. Generation Life reports that since the proposal was released in November 2023, inflows into investment bonds have risen 57%. Second, the “Super Recycle Strategy”—drawing tax-free pension payments from an account in the retirement phase, then gifting or recontributing those amounts into family members’ accounts. Third, using a family trust structure—retaining control while distributing income strategically. Fourth, charitable donations—claiming a tax deduction while supporting meaningful causes. Importantly, with the new policy delayed until 1 July 2026 and the unrealised gains tax scrapped, you have more time to plan and you don’t need to worry about paying tax on assets you haven’t sold. That gives advisers and those affected a longer buffer to make the best decisions.

I want to emphasise that the caps and tax rates are calculated per person. For example, if a couple are both members of the same SMSF, each has their own $3 million first-tier cap, and capital gains tax is worked out individually. It is not a single $3 million cap for the whole fund. In theory, a couple’s SMSF can have a combined $6 million first-tier cap. If an SMSF has six members—the maximum—the cap could be as high as $18 million. So there is considerable room to manoeuvre.

Will Superannuation Policy Change Again?

Will the super policy change again in future? Of course—and change is the norm. Since Australia’s super system was established in the 1990s, it has been continually adjusted and refined. It’s a dynamic system that has to adapt to shifts in the economy, demographics, and the government’s fiscal needs.

A change of government can bring a different approach to managing the economy; if there is fiscal pressure, large deficits, or funding demands for major projects, the superannuation fund can become a target. If demographics shift and an ageing population strains the system, rules may be adjusted. Or public opinion may push towards taxing the wealthy to provide more benefits to lower-income groups. Any of these can trigger changes to super rules. But changing super is unusually hard. The reach is enormous—almost every Australian is affected—and even small alterations can touch millions of people’s interests. The politics are highly sensitive. Super is the money people will rely on in retirement. If the public believes the government is raiding the super, that proposal is unlikely to pass.

Impact on SMSFs

These new rules will affect ordinary super members and SMSF members to different degrees. Simply put, if you’re not “high net worth,” or your balance is far from the $3 million threshold, the direct impact will be small, perhaps barely noticeable.

Most ordinary members—those investing through large industry or retail funds—fall into this category. Their super balances are typically well below $3 million.

SMSF members usually have more complex financial situations and are more likely to accumulate large balances, so the policy may hit them more directly. Taxes will certainly rise because there are now two extra brackets, and each bracket adds tax. That raises a practical question: when an asset is sold and there’s a capital gain, how is that gain attributed to each person? The answer is: in proportion to their individual balances. Yes, SMSF members can adjust how much of the fund each member holds. Under the new rules, if both spouses have an SMSF or other super accounts, they’ll tend to split assets as evenly as possible across the two accounts—or within the same SMSF under each member’s name—to maximise two separate $3 million thresholds. Unless one person retires earlier, there are many scenarios and complexities. Speak with your wealth planner. For our VISION members, we match you with a dedicated financial planner; if needed, book a session through your investment strategist.

Those SMSFs with especially high balances may need to reconsider asset allocation. High-growth assets with little short-term cash flow—such as certain properties or private equity—may not be optimal to hold inside super under the new settings. The policy could prompt people to move funds earlier from the accumulation phase to the pension phase, because in the pension phase, earnings are tax-free (subject to an overall cap—currently $1.9 million).

Just Starting to Buy Property with an SMSF

For those just beginning to use an SMSF to buy property, the direct impact of this new policy is usually very small—almost negligible—but it does shape future planning and mindset in important ways.

If you’re only now setting up an SMSF, your balance is likely well below the $3 million threshold. SMSFs have meaningful set-up and ongoing costs, so they’re generally considered once your super reaches a certain scale (we recommend $350,000 or more). Even then, getting to $3 million takes time and consistent investment returns.

Under today’s rules, there are actually very few restrictions on using an SMSF to invest in property. Previously, we encouraged our members to wait because SMSF investments might have been hit with tax on unrealised gains, and there was talk of setting the threshold at $2 million. But with the current settings—$3 million balance cap and no tax on unrealised gains—using an SMSF to buy two properties at around $800,000 each is entirely feasible. If there are two members in the SMSF, buying one or two more is usually not a problem. This gives property investors a tax-efficient tool. From next year, we expect to see a wave of SMSFs actively buying mid- to lower-priced residential properties as investments, pushing prices higher. If you haven’t set up an SMSF yet, it's time to start planning.

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