2026-27 Federal Budget What It Means for Your Super and What to Prepare For

A Pivotal Year for Superannuation Policy

The 2026-27 Federal Budget, expected to be handed down in May 2026, arrives at a critical juncture for Australia's superannuation system. Several significant policy changes have been legislated or proposed in recent years, and this budget cycle is when many of them are expected to take effect. From the contentious Division 296 tax on large super balances to the introduction of payday superannuation, the landscape for super is shifting in ways that affect everyone from young workers to high-net-worth retirees.

While the budget itself has not yet been delivered at the time of writing, a number of measures are already legislated or have been signalled clearly by the government. This article outlines what we know so far, what is likely, and — most importantly — what you should be doing now to prepare.

Division 296: The Tax on Super Balances Above $3 Million

The most significant structural change to superannuation taxation in recent memory is Division 296 of the Income Tax Assessment Act. Originally announced in the 2023-24 Budget and subsequently legislated, Division 296 introduces an additional 15% tax on the earnings attributable to superannuation balances exceeding $3 million. Combined with the existing 15% tax on super fund earnings, this effectively creates a 30% tax rate on the earnings associated with balances above the $3 million threshold.

How Division 296 Works

The tax is calculated using a proportional method. At the start and end of each financial year, the ATO compares your Total Superannuation Balance (TSB). The difference, adjusted for contributions and withdrawals, determines your super earnings for the year. The portion of those earnings attributable to the balance above $3 million is then taxed at an additional 15%.

Critically, this includes unrealised capital gains. If the market value of assets within your super fund increases during the year, that increase is treated as earnings for Division 296 purposes, even if no assets have been sold and no cash gain has been realised. This has been one of the most contested aspects of the legislation, particularly for members with illiquid assets such as property held within self-managed super funds.

The $3 Million Threshold Is Not Indexed

The $3 million threshold is fixed and will not be indexed to inflation. Over time, this means an increasing number of Australians will be captured by Division 296 as balances naturally grow. Treasury projections suggest the measure will initially affect approximately 80,000 individuals, but this number is expected to grow significantly over the coming decades.

What High-Net-Worth Individuals Should Do

• Review your Total Superannuation Balance: This includes all super interests across all funds — accumulation accounts, defined benefit interests, and pension accounts.
• Consider contribution strategies: If your balance is close to $3 million, additional non-concessional contributions may push you over the threshold. Model the net benefit carefully.
• Evaluate asset allocation: The taxation of unrealised gains means volatile assets (like equities or property) can create Division 296 tax liabilities without generating cash to pay them. Consider whether the asset mix within your fund is appropriate given this new tax reality.
• Withdrawal strategies: For those already in retirement, drawing down the balance below $3 million eliminates the Division 296 exposure. However, the withdrawn funds will then be subject to tax outside of super, so this requires careful modelling.

Payday Super: A Fundamental Shift in SG Timing

From 1 July 2026, employers will be required to pay Superannuation Guarantee (SG) contributions at the same time as salary and wages, rather than quarterly. This is commonly referred to as "payday super" and represents one of the most significant administrative changes to SG since its introduction.

What Changes

Under the current system, employers must pay SG contributions quarterly, with payments due 28 days after the end of each quarter. This means an employee paid on 1 July may not receive their SG contribution until 28 October. Under payday super, the SG must be paid on or shortly after each pay cycle. The ATO has indicated a grace period of up to seven days after payday for the contribution to be received by the fund.

Why It Matters for Employees

• Faster investment of contributions: Money entering your super fund more frequently means it is invested sooner, allowing compound returns to work from an earlier date.
• Easier detection of non-payment: Under the current quarterly system, it can take months to realise an employer has failed to pay SG. With payday super, missing contributions will be visible almost immediately on your fund statements.
• Potential impact on salary sacrifice arrangements: If you have a salary sacrifice arrangement, the timing and mechanics may change as employers update their payroll systems. Check with your employer and your fund.

Why It Matters for Employers and Business Owners

The compliance burden is significant. Employers will need to ensure their payroll systems, clearing houses, and fund connections can process SG contributions with each pay run. The ATO has indicated it will take a pragmatic approach during the initial transition period, but the underlying obligation will be strict. Business owners who also contribute to their own super need to be equally diligent about the timing of their personal contributions.

Contribution Caps: What to Expect

Contribution caps are indexed in line with Average Weekly Ordinary Time Earnings (AWOTE) and are rounded to the nearest $2,500 increment. For the 2025-26 financial year, the caps are:

• Concessional contributions cap: $30,000 per year
• Non-concessional contributions cap: $120,000 per year (or up to $360,000 using the bring-forward rule over three years, subject to your Total Superannuation Balance being below $1.9 million)

There is speculation that the 2026-27 budget may announce an increase to the concessional cap to $32,500, reflecting AWOTE growth. However, this has not been confirmed, and any change would apply from 1 July 2026 at the earliest. We will update this article when the budget papers are released.

Carry-Forward Contributions Remain Available

If you have a Total Superannuation Balance below $500,000 at the previous 30 June, you may be able to use unused concessional cap amounts from up to five prior financial years. This carry-forward provision is particularly valuable for those who have had periods of lower income or reduced contributions, as it allows for a larger concessional contribution in a single year without exceeding the adjusted cap.

Super Tax Concessions Under the Microscope

Beyond Division 296, the government has signalled a broader interest in the equity and sustainability of superannuation tax concessions. While no specific additional measures have been confirmed for the 2026-27 budget, several areas are under ongoing policy review:

• Tax-free status of pension phase earnings: Investment earnings on assets supporting account-based pensions are currently tax-free (up to the transfer balance cap of $1.9 million). This concession has been described by various commentators as the most generous in the superannuation system, and any change would have significant implications for retirees.
• Franking credit refunds: Super funds in pension phase receive full refunds of franking credits attached to Australian dividends. This provision has been debated in previous election cycles, and while no current proposal is on the table, it remains an area that could be revisited.
• Employer SG rate: The Superannuation Guarantee rate is legislated to increase to 12% from 1 July 2025, where it is scheduled to remain. The budget may reaffirm this position, particularly given ongoing debate about whether higher SG reduces take-home pay.

What Retirees Should Watch For

If you are already in retirement or approaching it, the 2026-27 budget has several dimensions worth monitoring:

Transfer Balance Cap

The general transfer balance cap is currently $1.9 million. This cap limits how much you can transfer from accumulation to the tax-free pension phase. It is indexed in $100,000 increments linked to CPI. Depending on inflation, a further increase to $2.0 million may occur, though the timing is uncertain.

Minimum Pension Drawdown Rates

The temporary 50% reduction to minimum pension drawdown rates, introduced during COVID-19, has expired. Standard minimum drawdown percentages now apply. The budget could potentially reintroduce temporary reductions if economic conditions warrant, but this is not expected.

Age Pension Interaction

Any changes to deeming rates, assets test thresholds, or income test parameters would directly affect retirees receiving the Age Pension. While these are typically adjusted through indexation rather than budget announcements, the budget papers often contain forward projections that signal future changes.

Action Items: What to Do Before the Budget

Rather than waiting for the budget and reacting, there are several proactive steps you can take now:

1. Know your Total Superannuation Balance. This single figure determines your eligibility for carry-forward contributions, the bring-forward rule, co-contributions, spouse contribution tax offsets, and your exposure to Division 296. Log in to myGov or contact your fund to get your current balance.
2. Maximise concessional contributions before 30 June 2026. If you have unused cap space, particularly carry-forward amounts, use them before the financial year ends. See our guide to salary sacrifice strategies for practical approaches.
3. Review your non-concessional contribution position. If you are considering a large non-concessional contribution, such as from the proceeds of a property sale or an inheritance, do so with awareness of the $3 million threshold and the bring-forward rules.
4. Check your employer's SG compliance. With payday super commencing from 1 July 2026, now is the time to verify that your employer's current SG payments are up to date and that they are preparing for the new regime.
5. Engage with your adviser. The interaction between contribution timing, cap thresholds, Division 296, and pension phase tax exemptions creates a complex optimisation problem. Professional advice is essential to avoid costly missteps.

The superannuation system is becoming more complex, not less. Staying informed and seeking advice before changes take effect is significantly more effective than trying to respond afterwards.

We Will Keep You Updated

Once the 2026-27 Federal Budget is delivered, we will publish a detailed analysis of all confirmed super changes and what they mean for your specific situation. In the meantime, if you have questions about how these expected changes may affect your financial plan, we encourage you to reach out.