The A$3 million super tax, decoded for people nowhere near A$3 million

A higher tax on the earnings of very large super balances started on 1 July 2026. It will not touch most Australians for decades, if ever. The way it was redesigned still says a lot about the rules younger workers will retire under.

Since 1 July 2026, Australians with more than A$3 million in superannuation have faced a higher tax rate on part of the earnings their fund generates. The measure, formally Division 296 of the tax law and known in Canberra as the Better Targeted Superannuation Concessions, is now law, according to the Australian Taxation Office (ATO).

Here is how it works. Normally, earnings inside a super fund in the accumulation phase are taxed at 15 per cent. Under the new rules, the share of earnings linked to the part of a balance above A$3 million is taxed at an effective 30 per cent. Above A$10 million, the rate rises to 40 per cent.

A simplified example shows the proportion at work. Someone with A$4 million in super has a quarter of their balance above the threshold. If their fund produces A$200,000 of taxable earnings in a year, a quarter of that, or A$50,000, attracts the extra 15 per cent. That is an additional A$7,500 in tax. The first assessments will be issued after the end of the 2026-27 financial year.

The government says the tax will affect less than 0.5 per cent of Australians in its first year.

The version that took effect is not the one first proposed. The original design taxed unrealised gains, meaning increases in the value of assets that had not been sold, and did not index the A$3 million threshold. Both features drew heavy criticism, including the concern that people holding assets such as farms or property in their super could face a tax bill on value that had not produced any cash to pay it.

In October 2025 the government changed course. The tax now applies only to future realised earnings, such as income received and gains on assets actually sold. And both thresholds will be indexed to keep pace with the transfer balance cap, the separate limit on how much can be moved into a tax-free retirement account.

"The original model was the best option identified at the time, but we have taken the decision to adjust the model to recognise the views we have heard since then," Treasurer Jim Chalmers said when announcing the changes.

So why should anyone in their twenties care?

The indexing change is the main reason. Without it, a fixed A$3 million line would have caught steadily more people over time as wages and asset prices rose, a slow form of bracket creep. Indexed thresholds mean the tax should stay aimed at a small group at the top rather than drifting down towards ordinary retirement balances decades from now.

The other reason is what the episode reveals. Super is a set of tax rules that governments adjust often. The same legislative package that created this tax also lifted the low-income super tax offset, a top-up for workers earning A$45,000 or less, from July 2027. Over a 40-year working life, a young worker should expect the rules governing their super to change many times.

The Association of Superannuation Funds of Australia (ASFA) put the new settings in perspective. "The concession is now smaller for those at the top, but it is still a concession," said James Koval, ASFA's chief policy and advocacy officer.

For almost everyone under 40, Division 296 is someone else's tax, and treating it as a personal threat would be scaremongering. The redesign removed the two features that could have reached ordinary savers over time: taxing paper gains and a frozen threshold. What is worth taking from it is how quickly super settings shift. We expect super tax concessions to keep being trimmed at the top and topped up at the bottom in coming budgets. For a young worker the practical lesson is simple. Build your plans around what super is for, retirement savings taxed more lightly than wages, and treat the specific rules as something you will need to check again every few years.