Breaking Down the Latest Superannuation Tax Changes in Australia

Superannuation tax changes in Australia are currently undergoing significant review as the government reconsiders controversial aspects of its Division 296 proposal. The contentious tax measure would impose an additional 15 per cent tax on earnings from superannuation balances exceeding $3 million. Initially scheduled to commence from 1 July 2025, the Division 296 tax was expected to generate approximately $2.3 billion in its first full year of implementation. However, the Prime Minister’s Office has reportedly taken an increased interest in this policy, which was first announced in February 2023.

The super tax changes have sparked considerable debate within financial circles, with industry experts raising serious concerns about its design and implementation. According to Treasury expectations, the measure would raise about $2 billion annually. Notably, Geoff Wilson, chairman of Wilson Asset Management, warned that taxing unrealised capital gains would effectively pull money out of the superannuation system. Additionally, AMP deputy chief economist Diana Mousina’s modelling demonstrated that without proper indexation, even an average 22-year-old worker today could accumulate over $3 million in super by age 64 due to wage inflation and compound interest. These findings have consequently intensified calls for the government to reconsider key elements of this superannuation news that could significantly impact retirement planning for many Australians.

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Government Announces Changes to Division 296 Super Tax

Following a decisive victory in the May 2025 federal election, the Albanese Labour government has confirmed its intention to implement the controversial Division 296 superannuation tax. This measure represents one of the most significant changes to Australia’s superannuation system in decades.

What is Division 296, and Why is it Controversial?

Division 296 introduces an additional 15% tax on earnings derived from superannuation balances exceeding AUD 4.59 million. Essentially, this increases the overall tax rate to 30% on earnings above this threshold. The tax is assessed at the individual level, aggregating all superannuation accounts held by a person.

The most contentious aspects include:

• Taxation of unrealised gains, meaning increases in asset values will be taxed even if assets aren’t sold
• No indexation of the AUD 4.59 million threshold
• No refunds for negative returns, though losses can be carried forward

Key Changes: Indexation and Unrealised Gains Under Review

The superannuation industry has called on the government to abandon plans to tax unrealised gains and to index the AUD 4.59 million threshold. Furthermore, former prime minister Paul Keating has reportedly lobbied against the design, particularly its application to unrealised gains and lack of indexation.

In response to mounting criticism, the government has paused its original proposal for reconsideration. The Prime Minister’s office has stepped in, reflecting concerns about fairness and the broader message the measure sends about aspiration.

When Will The New Super Tax Take Effect?

The Division 296 tax is expected to go into effect on July 1, 2025. Only individuals with total superannuation balances exceeding AUD 4.59 million will be subject to these new arrangements.

For each income year from 2025-26, the Commissioner will calculate a Division 296 tax liability and notify affected individuals. The amount assessed is generally due and payable within 84 days of receiving the notice. Importantly, it’s the member’s adjusted total super balance on 30 June 2026 that will be relevant for the first year of operation.

Labour Faces Internal and External Political Pressure

The Albanese government finds itself under mounting pressure over its Division 296 superannuation tax changes, with reports indicating the controversial policy has been temporarily paused as key stakeholders voice opposition from multiple fronts.

Prime Minister’s Office Intervenes in Tax Policy

The Prime Minister’s office has reportedly taken direct control of the superannuation tax reform, signalling potential shifts in the policy’s direction. Three separate sources confirmed that internal discussions have been held in recent weeks as Anthony Albanese’s office increases its involvement in the tax proposal. This intervention appears driven by concerns about voter perception and the message the measure sends about aspiration. Nevertheless, while no final decision has been announced, senior government figures have notably avoided media requests for clarity—a clear indication that changes are forthcoming.

Opposition and Crossbench Reactions

The Coalition has vehemently rejected the superannuation tax proposal in its entirety. Shadow Treasurer Ted O’Brien declared the opposition would fight the changes “every step of the way” without compromise, describing the tax as “super big, super bad” and “grossly unfair”. In fact, O’Brien labelled the government “cowards” for slowing down implementation of the plan. Meanwhile, Shadow Assistant Treasurer Pat Conaghan asserted that Labour’s consideration of modifications was “proof” the policy is “deeply flawed” and represents a “slow-motion tax trap” for future generations. The opposition has consistently maintained that, should the legislation pass, they would repeal it if returned to power.

Greens’ Support Critical for Passage

Given that Labour lacks a Senate majority, the Greens’ position has become pivotal for the legislation’s future. The minor party has suggested a compromise: lowering the threshold to AUD 3.06 million while adding indexation rules. Throughout negotiations, Greens Treasury spokesperson Nick McKim has offered to work “constructively” with Labour to ensure the plan is “as strong and fair as it can be”. Despite this, Prime Minister Albanese has dismissed these suggestions, claiming the Greens “usually do not have good points”. Interestingly, Wilson Asset Management chairman Geoff Wilson, while opposing any new tax, has acknowledged the Greens’ indexed approach as “a lot fairer for young people” than Labour’s unindexed proposal.

Experts Debate Fairness and Economic Impact Super Tax

The proposed superannuation tax changes in Australia have sparked intense debate among economic experts regarding fairness and long-term fiscal impacts across generations.

Economists Warn of Intergenerational Inequality

Economic analysis reveals a concerning imbalance in Australia’s current superannuation industry. Treasury projections indicate super tax concessions will cost more than the Age Pension by approximately 2040. Currently, the highest 20% of incomes receive more than two-thirds of these tax benefits. Grattan Institute economists have emphasised that existing super tax breaks are “not just inequitable; they are economically unsound,” as the burden ultimately falls “disproportionately on younger taxpayers”. Moreover, without reform, one-third of all superannuation payouts will become bequests by 2060, effectively transforming the AUD 6.12+ trillion system into a “massive taxpayer-subsidised inheritance scheme”.

Industry Leaders Fear Capital Flight From Super Funds

Wilson Asset Management research suggests the new superannuation changes could trigger an exodus of AUD 236.99 billion from superannuation into property markets. The SMSF Association argues that the proposal unfairly targets business owners, although supporters maintain that it addresses wealth concentration. Likewise, the National Farmers’ Federation warns farmers that they might face unwanted land sales.

Treasurer Defends Policy as Necessary Reform

Jim Chalmers insists the superannuation changes remain “extremely generous”, arguing critics often support “tax reform in the abstract, but very rarely in the specific”. Facing structural budget constraints, Chalmers maintains that the modest adjustment addresses “intergenerational responsibilities”.

Modelling and Long Term Effects

Recent financial modelling has revealed striking long-term impacts of the proposed superannuation changes on younger Australians, specifically regarding the AUD 4.59 million threshold.

AMP: Workers May Reach $3m Super Cap

AMP deputy chief economist Diana Mousina’s research demonstrates that today’s 22-year-old worker earning merely an average wage would accumulate more than AUD 4.59 million in superannuation by age 64. The model assumes 3% wage growth and no changes to the super guarantee rate.

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Calls for Indexation to Prevent Bracket Creep

Financial Services Council (FSC) modelling reveals that without indexation, over 500,000 Australians currently in the workforce would be affected by retirement. Conversely, with indexation, this number drops dramatically to approximately 64,000.

Financial adviser Bryn Evans noted: “People understand that compounding returns for decades can produce quite spectacular results. With that key element of a lack of indexation – when things are not indexed – they just don’t move”.

Comparison With Income Tax Indexation Practices

Unlike superannuation, income tax brackets have historically changed frequently. Indeed, Australia’s income tax brackets have shifted drastically throughout the past 40 years. Nonetheless, many Australians experience bracket creep—getting a pay rise yet seeing minimal change in take-home pay—which disproportionately affects low and middle-income earners, young people, and women.

AustralianSuper has subsequently called for a mandatory post-implementation review after three years if indexation isn’t introduced.

Conclusion – Superannuation Tax Changes In Australia

Australia stands at a crossroads with its Division 296 superannuation tax proposal. The Albanese government faces significant challenges balancing fiscal responsibility against concerns of fairness and economic impact. Critics have certainly raised valid points about taxing unrealised gains and the absence of threshold indexation, which could potentially affect average wage earners decades from now.

Political pressure continues to mount from multiple directions. The Coalition remains steadfastly opposed to any version of the tax, while the Greens offer conditional support with modifications. Meanwhile, industry experts warn about capital flight from superannuation funds, though economists highlight the current system’s intergenerational inequities.

Perhaps most concerning, financial modelling demonstrates how even ordinary workers could eventually exceed the AUD 4.59 million threshold without proper indexation. This reality undermines the government’s assertion that the tax targets only the wealthy. The stark difference between affected populations—500,000 workers without indexation versus 64,000 with it—speaks volumes about the proposal’s long-term implications.

The government must, therefore, balance immediate revenue needs against long-term fairness. Whatever decision emerges will undoubtedly shape Australia’s retirement landscape for generations. Australians now watch closely as the Prime Minister’s office reconsiders crucial elements of this contentious policy, knowing their financial futures hang in the balance.