After nearly two years of debate, the government has unveiled a revised version of the superannuation tax reform, softening some of its most controversial elements. The good news for trustees: unrealised gains will no longer be taxed. The bad news: the measure still raises the effective tax burden for high-balance accounts and introduces new tiers, thresholds, and reporting complexity.

This is the most significant rewrite of superannuation taxation in more than a decade. Below, we unpack what has changed, how the new model works, and what it means for SMSF trustees navigating the new landscape.

The Policy in Context

The original proposal from early 2023 sought to double the tax rate on earnings linked to super balances above $3 million, with the key controversy being the inclusion of unrealised gains. Industry groups warned that taxing paper profits would penalise long-term investors, particularly SMSFs holding property or private assets. In response to sustained pressure from trustees, accountants, and superannuation bodies, the government has now modified the design to focus solely on realised earnings.

The revised policy takes effect from 1 July 2026, giving investors more time to prepare for a more predictable, though still progressive, tax structure.

The New Tax Structure Explained

The reworked framework now operates on a tiered system of taxation based on an individual’s Total Superannuation Balance (TSB) across all funds.

The rates apply only to the portion of earnings attributable to the balance above each threshold.

Importantly, these thresholds will be indexed to inflation, addressing one of the largest long-term concerns from earlier drafts. Indexation ensures that rising asset values and CPI growth will not gradually drag middle-tier retirees into higher-tax territory.

Unrealised Gains No Longer Included

Under the original model, the ATO would have taxed annual changes in asset valuations regardless of whether assets were sold. That feature has been removed entirely.

Tax will now apply only to realised earnings, including:

• Dividends and distributions
• Interest income
• Rental income
• Realised capital gains from the sale of assets

This change dramatically simplifies compliance and eliminates the cash-flow risk of having to pay tax on paper gains. SMSF trustees holding property or unlisted shares will no longer face the possibility of being taxed on notional growth.

It also restores one of the key principles of the super system, that long-term investing should not be penalised by short-term fluctuations in asset prices.

The $3 Million Threshold and Indexation

The $3 million threshold remains the cornerstone of the reform, but unlike the earlier draft, it will now rise annually with CPI. This means that over time, fewer Australians will drift into the higher-tax category simply due to inflation and compounding returns. Treasury expects that fewer than 100,000 individuals will be affected at launch, representing roughly 0.5 per cent of all super members.

For trustees approaching the threshold, the challenge will be to forecast whether future growth could push their balances into Tier 2. Proactive planning will become critical for anyone currently sitting in the $2.5 – $3 million range.

Treatment of Defined Benefit Schemes

The new draft retains special rules for defined benefit schemes, which primarily affect senior public-sector employees and politicians. These funds will use a formula that converts the projected lifetime pension entitlement into an equivalent account-based value for the purpose of determining which tier applies. Critics argue that these conversion factors may still underestimate the true value of such entitlements, effectively giving some defined-benefit members preferential treatment.

For SMSF trustees, however, the calculation is straightforward: their reported balances and earnings will be based on market valuations and actual realised income.

Implementation Timeline

• 1 July 2026: The new regime commences.
• FY 2026-27: The first year in which higher tax rates apply.
• FY 2027-28: The first assessment notices will be issued by the ATO based on lodged returns.

This extended timeline gives trustees and advisers nearly two financial years to adjust portfolios, rebalance liquidity, and update valuation processes.

Compliance and ATO Administration

The ATO will continue to calculate total balances using each fund’s annual return. For SMSFs, this means accurate reporting and valuation practices remain essential.
Although unrealised gains are excluded, trustees must still ensure that:

• Realised gains are reported correctly with substantiating documentation.
• Withdrawals, contributions, and pension payments are accurately recorded.
• Member balances are reconciled across all funds and accounts to avoid double counting.

The ATO will then issue an annual liability notice for those falling into Tier 2 or 3, much like Division 293 tax assessments today.

Liquidity and Portfolio Strategy

The removal of unrealised gains from the tax calculation reduces the liquidity pressure that many feared, but the higher rate on large balances still demands careful planning.
Trustees should:

• Maintain sufficient liquidity to meet tax obligations from realised income and sales.
• Consider balancing high-yielding assets with long-term growth holdings.
• Model future cash-flows under different asset-realisation scenarios.

Funds heavily weighted toward property or private equity should ensure that rental income or distributions can cover any additional tax rather than relying on asset sales.

How the Changes Affect Investment Behaviour

The shift to a three-tier system could influence how large SMSFs allocate capital.

• Growth vs. Income: Some may shift from high-growth equities to income-producing assets to manage volatility and realised gains.
• Diversification: Trustees may spread wealth across family members or structures to stay within lower thresholds.
• Non-super vehicles: There may be renewed interest in discretionary trusts or investment companies as supplementary vehicles for wealth accumulation beyond super.

While diversification can help manage tax exposure, it must be weighed against CGT consequences, contribution caps, and the loss of super’s broader concessions.

Revenue Impact and Political Framing

Treasurer Jim Chalmers has described the final plan as a balanced, fair, and fiscally responsible measure, estimating it will raise around $2 billion a year once fully implemented.
By scrapping the unrealised-gains component and introducing indexation, the government has neutralised the harshest criticisms from industry groups while still achieving its revenue goals.

Nevertheless, the measure reopens a philosophical debate about the purpose of superannuation, is it primarily a retirement-income system or a wealth-storage mechanism?
For trustees, the answer shapes how they think about risk, yield, and intergenerational planning.

Key Implications for SMSF Trustees

1. Simplified Administration
   Excluding unrealised gains means valuations can revert to normal end-of-year standards rather than mark-to-market revaluations each June. Compliance workload and audit costs should fall relative to earlier expectations.
2. Liquidity Management Still Vital
   Although the most severe cash-flow risks are gone, trustees must ensure that the fund generates enough income to pay higher tax on realised earnings.
3. Estate-Planning Considerations
   For multi-member SMSFs, higher tax rates may influence when and how benefits are withdrawn. Balances approaching the Tier 2 threshold might be partially rolled into spouse funds to optimise household-level taxation.
4. Review of Contribution Strategies
   Future contributions that push balances above $3 million may yield diminishing tax benefits. Advisers are now modelling whether to cap super balances intentionally and redirect additional savings into alternative vehicles.
5. Communication and Reporting Discipline
   As the new rules bed in, trustees will need clear records of realised gains, distributions, and member transactions to avoid disputes with the ATO over taxable earnings attribution.

What Has Stayed the Same

Not all aspects of the system are changing.

• The 15 % tax rate still applies to all earnings below the threshold.
• Earnings in retirement (pension phase) remain tax-free up to the Transfer Balance Cap (currently $1.9 million per member, indexed).
• Franking credits and deductions continue to operate as before.

The fundamental mechanics of super taxation remain intact; what differs is the additional layer of progressivity at the top end.

Remaining Grey Areas

Several technical questions remain under Treasury consultation, including:

• How capital losses will offset gains across tiers.
• Whether refunds of excess franking credits will be proportionally reduced for Tier 2 members.
• How transitional arrangements will apply to asset sales straddling June 2026.

Trustees should expect detailed guidance from the ATO in early 2026 once consultation feedback is finalised.

Strategic Considerations Before 2026

With two years to plan, SMSF trustees should now:

1. Assess total balances across all funds and members.
2. Model exposure to the new tiers under realistic growth assumptions.
3. Review contribution strategies to avoid breaching the indexed thresholds.
4. Revisit asset-allocation for liquidity and yield sufficiency.
5. Engage advisers early to optimise structuring and estate-planning outcomes.

Early modelling can identify whether it is worth realising gains before the new tax year or deferring income to benefit from the lower tier in 2026.

The Bigger Pict!ure

By moving away from taxing unrealised gains, the government has restored confidence in the principle that superannuation should reward patient capital.
However, the broader signal is clear: large balances are now a political target. The conversation has shifted from whether to tax super more heavily to how to do it efficiently.

SMSF trustees, particularly those with balances above $5 million, should view this as the start of a structural change rather than a one-off policy tweak.

The TAMIM Takeaway

The updated super tax reforms strike a more measured tone. By excluding unrealised gains, introducing tiered rates, and indexing thresholds, the government has avoided the most distortionary outcomes of its earlier proposal.

Yet, higher tax rates on large balances will still reshape behaviour within the SMSF sector. Liquidity management, contribution timing, and portfolio diversification are becoming just as important as asset selection.

For long-term investors, this reinforces an enduring truth: tax policy may shift, but discipline, prudence, and strategic planning remain the keys to compounding wealth effectively within super.