The government has introduced proposed changes to Australia’s superannuation system that could affect Australians at both ends of the income scale. While the reforms are mainly aimed at people with very large super balances, they also include extra support for low-income earners.

One of the key proposals is a new tiered Division 296 tax for superannuation earnings on balances above $3 million, due to commence from 1 July 2026. Under the proposed changes, the current 15% tax rate would continue to apply to earnings on balances up to $3 million. Earnings linked to the portion of a super balance between $3 million and $10 million would be taxed at an effective rate of 30%, while earnings on amounts above $10 million would face a 40% effective tax rate.

The proposed thresholds would be indexed over time to keep pace with inflation. Importantly, the new tax is intended to apply only to future realised earnings, rather than unrealised capital gains on assets that have not yet been sold.

The government says the changes would affect fewer than 0.5% of current superannuation members — around 80,000 Australians. For the overwhelming majority of people, the existing tax treatment of super would remain the same.

The Bill also proposes changes to the low income superannuation tax offset (LISTO), which are designed to improve retirement outcomes for lower-income earners from 1 July 2027. If passed, the income threshold for LISTO would increase from $37,000 to $45,000, while the maximum offset would rise from $500 to $810. Future increases would also be indexed in line with tax thresholds and super guarantee rates.

According to the proposal, more than 1.3 million Australians could benefit from the enhanced LISTO, with around 60% of those expected to be women. Treasury estimates eligible workers could receive an average retirement benefit equivalent to an extra $15,000 over time.

For those with large super balances, the proposed changes could have a significant impact on long-term retirement and tax planning. For lower-income earners, the LISTO enhancements could mean broader eligibility and greater support through the super system.

It is important to remember that these measures are still only proposed. They must pass Parliament before becoming law, and there is still the possibility of changes before anything is finalised.