October 2025 Tax & Super Update

Major changes to the new Division 296 tax and Payday Super moves closer to becoming reality

This month has brought several important updates for employers and superannuation members, with significant progress on two key measures — the revised Division 296 tax and the introduction of Payday Super legislation.

Division 296 Tax – Key Revisions Announced

On 13 October 2025, the Federal Treasurer announced a series of major design changes to the proposed Division 296 tax. These revisions aim to address concerns raised by the profession and industry stakeholders.

Here’s what’s changing:

• Two-tier thresholds: In addition to the existing $3 million threshold, a new $10 million threshold will apply.

• Progressive tax rates:

  • For super balances between $3 million and $10 million, earnings will be subject to an additional 15% tax (on top of the fund’s standard 15%).

  • For balances above $10 million, the additional tax increases to 25%, bringing the total to 40%.

• Indexation: Both thresholds will be indexed to CPI (the $3 million threshold in $150,000 increments, and the $10 million threshold in $500,000 increments).

• Realised earnings approach: The government will shift from taxing unrealised gains to a realised earnings model, aligning more closely with existing income tax principles.

• Fund-level reporting: Super funds, including SMSFs, will calculate and report members’ share of realised earnings to the ATO, rather than the ATO reconstructing earnings.

• Start date deferred: Implementation will now begin from 1 July 2026, with the first Division 296 assessments expected in 2027–28.

These changes reflect a more practical and transparent approach, particularly for self-managed super funds and larger super balances.

Payday Super – Legislation Introduced

The Government has officially introduced Payday Super legislation to Parliament, proposing that from 1 July 2026, employers will need to pay employees’ super contributions at the same time as wages.

Under the new system:

• Super Guarantee (SG) contributions must be received by the employee’s fund within seven business days of payday.

• Failure to meet this timeline will trigger updated Superannuation Guarantee Charge (SGC) obligations.

The ATO has also confirmed that the Small Business Superannuation Clearing House (SBSCH) will close from 1 July 2026. Employers should start exploring alternative super payment solutions ahead of this change.

To help smooth the transition, the ATO has released draft Practical Compliance Guideline PCG 2025/D5, outlining a risk-based approach for the first year of Payday Super. In short:

• Low-risk employers: Those who make genuine attempts to pay on time and correct errors quickly.

• Medium-risk employers: Slight delays but no ongoing shortfalls.

• High-risk employers: Persistent or repeated late payments.

The ATO will focus its compliance efforts on high-risk employers in the early phase, providing some leniency for those making genuine efforts to comply during the first year (to 30 June 2027).

Boost to the Low Income Superannuation Tax Offset (LISTO)

The Government has also proposed an increase to support lower-income earners:

• The maximum LISTO payment will rise from $500 to $810.

• The income threshold will increase from $37,000 to $45,000.These changes are proposed to start from 1 July 2027, with draft legislation expected in 2026.

What This Means for You

Whether you’re an employer, trustee, or individual investor, these changes signal a more immediate, transparent, and progressive superannuation system.

Employers should begin reviewing payroll and super systems ahead of Payday Super’s introduction. SMSF trustees and those with higher balances should stay informed as Division 296 consultation continues through 2026.

As always, our team will continue to monitor developments and provide practical guidance to help you stay compliant and make informed decisions.

Note: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone. 

If expert assistance is required, Contact the team @ Clear Accounting Solutions to run you through your options