In brief
The Australian Government has announced significant updates to its Better Targeted Superannuation Concessions (BTSC) policy which will impose an ‘additional’ tax on earnings from an individual’s total superannuation benefit balance that exceed $3m at the end of a financial year.
A key feature of the revised proposals is a move to a tax calculation method based on realised earnings, rather than unrealised and realised earnings as was originally planned, and a welcome deferral of the start date for these changes to 1 July 2026, allowing further consultation and time for the superannuation sector to prepare.
In detail
Superannuation in Australia enjoys concessional tax treatment to encourage long-term savings for retirement. However, in response to concerns raised about the sustainability and fairness of these concessions, particularly for individuals with very large superannuation balances, the Government announced in the 2023-24 Federal Budget that there would be a better targeted approach to limit these concessions to those individuals who have access to total superannuation benefits of under $3m. Following stakeholder feedback on these proposals, the Government announced on 13 October 2025 that not only would it boost the low‑income superannuation tax offset (LISTO) from 1 July 2027 but would make several practical changes to the design and implementation of its policy to better target superannuation concessions and address stakeholder feedback.
Who is affected?
Most superannuation members will not be affected by the BTSC proposal and will continue to benefit from existing concessional tax treatment applied to fund earnings. The Government estimates that less than 0.5% of Australians with superannuation accounts are expected to be affected by the proposal in 2026-27, with less than 0.1% impacted by the higher 40% rate.
The BTSC reforms are targeted at individuals with high superannuation balances, i.e. those with total superannuation balances exceeding $3m as at the end of the financial year, i.e. the first liability will apply to those with a total balance of at least $3m as at 30 June 2027. Importantly, this threshold will be indexed (see below) to keep pace with inflation and as such, members who currently have low superannuation balances over time may continue to be excluded from the additional tax impost.
It is proposed that those individuals who are subject to the additional tax under the BTSC will be notified of their liability to pay the BTSC tax by the ATO, which will have access to the individual’s total superannuation balances that are already annually reported to the ATO by all super funds.
When it comes to enabling the ATO to calculate the applicable tax, superannuation funds will need to prepare for additional reporting of information to the ATO. It is proposed that a super fund will be contacted by the ATO to provide the proportion of the fund’s applicable realised earnings for any individual with a total super balance above the legislated threshold.
What are the key aspects of the new proposal?
As mentioned earlier, the commencement date of the new BTSC rules has been pushed back to 1 July 2026, with the first notices of assessment expected in the 2027–28 financial year. Not only will this provide additional time for consultation and for funds to update their systems and processes, but time for the applicable legislation to be developed and enacted, ideally well before 1 July 2026.
The key changes in the revised BTSC proposals are:
- Introduction of a second threshold: A second threshold of $10m will apply in addition to the $3m threshold. This is said to allow for a more progressive tax treatment of superannuation earnings for individuals with very large balances which would be subject to a higher rate of tax (see below).
- Tiered tax rates on earnings: The revised policy introduces a two-tiered tax rate on superannuation earnings above the thresholds:
- Earnings attributable to the proportion of total super balances at year end between $3m and $10m will be taxed at a total concessional rate of 30% (i.e. an additional 15% over the fund’s current 15% tax rate).
- Earnings attributable to the proportion of total super balances at year end above $10m will be taxed at a total concessional rate of 40% (i.e. an additional 25% over the fund’s current 15% tax rate).
Any individual who has a total super balance below $3m, i.e. a not in-scope member, will continue to have the standard concessional 15% tax rate applied to fund(s) earnings, or nil if in exempt pension phase.
- Calculation based on realised earnings: The new approach calculates a BTSC tax liability using the superannuation fund’s realised earnings. The Treasury Fact Sheet indicates that this will be based on the fund’s taxable income adjusted for contributions and pension phase income, attributed to the fund member who is in scope. Some media reports have indicated that this might be further adjusted to cater for capital gains accrued on assets held as at the start date (presumably this will be a matter considered during the consultation process).
- Indexation of thresholds: Both the $3m and $10m thresholds will be indexed in line with the Consumer Price Index in $150,000 and $500,000 increments respectively. This ensures the thresholds keep pace with inflation and changes in the Transfer Balance Cap.
The shift in approach to more closely align the BTSC tax base with taxable income means that movements in unrealised asset values during a relevant year will not be subject to the new tax as was originally proposed. This revised approach also limits the potential for cash flow problems that could have emerged when the tax had to be funded out of assets that were yet to realise their value, and ensures there are no anomalies where there are unrealised losses.
The amount of tax attributed to an in-scope member may not always be perfect, but it is expected to be an appropriate share of the fund’s realised earnings based on existing fund reporting mechanisms or on a fair and reasonable basis. The government will consult on the best approach to calculate realised earnings and attribute to in‑scope individuals.
Consultation is also necessary to determine the best way to:
- extend the existing exemption for some judges to improve consistency across jurisdictions, and
- make additional changes necessary to ensure commensurate treatment is maintained for defined benefit members.
Individuals will still be notified of their liability to pay any BTSC tax by the ATO and will still have the choice of paying the tax directly or from their super funds.
It is also relevant to note that there may be other taxes applicable to contributions made to a super fund, particularly for those high-income earners who are also subject to an additional 15% tax on contributions.
The takeaway
The Government’s revised superannuation tax proposals represent a more targeted and progressive approach to taxing high superannuation balances, while maintaining concessional treatment for the vast majority of Australians. With the introduction of indexed thresholds, a tiered tax rate, and a move to taxing realised earnings, these changes should support long-term sustainability and fairness of the superannuation system.
The Government will consult further with the superannuation industry and other stakeholders to finalise the details and introduce legislation in 2026.
Affected individuals and superannuation funds should begin preparing for the new rules, with further details and guidance to be provided ahead of the 1 July 2026 start date. If you wish to discuss how the proposed rules might apply to your circumstances, please reach out to your PwC adviser or one of our superannuation specialist contacts.
Contact us
Sharyn Frawley
Partner, Private, PwC Australia
Naree Brooks
Partner, Private Clients, PwC Australia
Marco Feltrin
Partner, Tax, PwC Australia
Tara Cuddihy
Partner, PwC Private, PwC Australia
Matthew Gurner
Partner, Private, Family Office, PwC Australia
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