Government scraps tax on unrealised gains, adds $10 million tier

After two years of debate, the Albanese Government has overhauled its controversial plan to tax large superannuation balances - removing the tax on unrealised gains, adding a second tier for balances above $10 million, and delaying the start date by a year.

The reforms, announced today, mark a major pivot from the original Better Targeted Superannuation Concessions bill that would have taxed unrealised capital gains on balances above $3 million from July 2025.

Treasurer Jim Chalmers said the Government had “worked through the issues and found another way,” acknowledging the backlash from industry groups, self-managed fund trustees, and advisers who warned that taxing unrealised gains could create liquidity crises for asset-rich, cash-poor investors - particularly farmers and property owners.

What’s changing

From 1 July 2026, the key features of the revised package will include:

• Two-tier structure: Earnings on balances between $3 million to $10 million → taxed at 30%; earnings on balances above $10 million → taxed at 40%

• Indexation: Both thresholds will be indexed in line with the Transfer Balance Cap, ensuring fewer Australians are dragged into the higher-tax net over time.

• Realised gains only: Tax will now apply only to future realised earnings, not paper gains, eliminating the most contentious element of Division 296.

• Start date delayed: Implementation pushed back to 1 July 2026 to allow further Treasury consultation.

• Defined-benefit parity: Equivalent treatment will apply to defined-benefit members, with small exemptions for some judicial schemes.

These changes mean that fewer than 0.5% of Australians will be affected - roughly 80,000 people - but the structure is now more progressive at the very top end.

"[We will] adjust the earnings calculation so the concessional tax rates on large balances only apply to future realised earnings," said Chalmers.

"Treasury will consult on implementation details including the best approach to the calculation of future realised gains and attribution to individual fund members.

Extra boost for low-income Australians

Alongside the super tax reform, the Government will increase the Low-Income Superannuation Tax Offset (LISTO) from $500 to $810, and lift the eligibility threshold from $37,000 to $45,000 starting 1 July 2027.

The measure will benefit 3.1 million Australians, around 60% of whom are women, providing an average annual uplift of $410 and potentially adding about $15,000 to retirement balances over a career.

“The boost to LISTO means 14 times as many Australians will benefit compared to those affected by the higher-balance changes,” said Chalmers.

Why this matters

For advisers and investors, today’s announcement rewrites the playbook from earlier iterations of Division 296 that sent many high-balance members scrambling to restructure portfolios, equalise spousal accounts, or shift assets out of super.

The removal of the unrealised-gains component resolves a key liquidity concern raised by Wilson Asset Management and others, who warned that super funds could be forced to sell property or private-market assets to meet annual tax bills on paper profits.

Indexation also addresses inflation creep, a major criticism that the fixed $3 million cap would eventually capture middle-income retirees decades from now.

Fiscal impact and next steps

Treasury estimates the combined package will cost $4.2 billion over the forward estimates, largely due to the one-year delay, but deliver budget savings of $1.6 billion per year from 2028-29.

Super tax concessions currently cost the budget $55 billion annually and are projected to exceed Age Pension spending by the 2040s.

Legislation to implement the new framework will be introduced in 2026 after further consultation with the superannuation industry.

"These reforms maintain the concessional treatment of superannuation, but ensure it is provided in a more equitable and sustainable way," said Chalmers.

The takeaway

For now, advisers and investors can breathe a massive sigh of relief:

• The feared tax on unrealised gains is gone.
• Indexation is in.
• And advisers have an extra year to plan.