2026-27 Federal Budget update and 1 July changes

In this episode of ESSSuper's Exploring Super podcast, we discuss announcements made in the 2026-27 Federal Budget and super-related changes coming into effect from 1 July 2026.

Transcript

00:00:02 

You're listening to Exploring Super, the exclusive podcast for ESS Super members. 

00:00:11 

Welcome to Exploring Super, the exclusive podcast for ESS Super members. 

00:00:16 

I'm Christian Kueng, Manager of Member Education. 

00:00:18 

And today I'm joined by Michael Blackman, our Defined Benefit Technical Training Manager. 

00:00:23 

Hi Michael, great to have you here. 

00:00:24 

Thanks for having me, Christian. 

00:00:26 

So today we're going to dive into the recent federal budget from a superannuation perspective and unpack the key changes coming to effect from 1 July 2026. 

00:00:34 

So Michael, what was in the budget that was related to super this year? 

00:00:39 

Look, there was very little of note. 

00:00:40 

The headline budget announcements focus primarily on tax reforms, particularly around capital gains tax and negative gearing. 

00:00:47 

Yes, bit of noise about that. 

00:00:48 

Yeah, fair bit of noise. 

00:00:50 

So look, there were no, I suppose, major superannuation changes announced that I suppose our members would need to be aware of or take action on at this stage. 

00:00:59 

Okay. 

00:00:59 

The only proposed changes relating to superannuation appear to be in the area of the performance test. 

00:01:04 

Okay. 

00:01:04 

I'll give you a bit of background on that. 

00:01:06 

So the super performance test is an annual check. 

00:01:09 

It compares a fund's long-term returns after fees to a benchmark based on its investment mix and really that's to identify underperformance. 

00:01:19 

Following the budget, Treasury opened a public consultation on reforms to modernise the test, including adjusting benchmarks for alternative assets and introducing risk-adjusted performance measures. 

00:01:32 

I should just say that the performance test is applied to APRA regulated funds in the industry. 

00:01:37 

However, not all super funds are regulated by APRA. 

00:01:40 

For example, exempt public sector super schemes such as ESS Super. 

00:01:44 

These are not APRA regulated. 

00:01:48 

So I also heard some good news about the reduction in income tax. 

00:01:52 

Yeah, that's right. 

00:01:52 

So we'll start with a couple of the key tax changes that were announced. 

00:01:56 

So first off, there is the Working Australian Tax Offset, or WATO. 

00:02:01 

From the 27-28 financial year, eligible working Australians will receive a new tax cut of $250. 

00:02:06 

In addition, from the 26-27 financial year, employees and sole traders will be able to claim up to $1,000 in work-related expenses without needing to keep receipts. 

00:02:17 

Thanks for that, Michael. 

00:02:18 

So yeah, with the income tax though, can you give us a bit of detail about that and those potential reductions? 

00:02:23 

Yeah, absolutely. 

00:02:24 

So the government's announced reductions to the personal income tax rate. 

00:02:28 

And this was previously announced in the 2025 budget. 

00:02:31 

And this is for earnings between $18,200 and $45,000 with rates decreasing. 

00:02:37 

So I'll take you through those reductions. 

00:02:39 

So from 16 to 15% from 1 July 2026, from 15% to 14% from 1 July 2027. 

00:02:47 

And look, what that means is taxpayers will receive a tax cut of up to $268 from 1 July 2026, increasing to $536 from 1 July 2027. 

00:02:59 

Excellent. 

00:02:59 

Thanks, Michael. 

00:03:00 

So from a super perspective, what changes in super will we see come through for 1 July this year? 

00:03:06 

Yeah, look, they're mostly scheduled changes, Christian. 

00:03:08 

So I'll take you through some of those, including contribution caps, total super balance cap and transfer balance cap, just to name a few. 

00:03:14 

Thank you. 

00:03:15 

Excellent. 

00:03:15 

So from 26-27 financial year, the concessional contributions cap increases to $32,500. 

00:03:20 

The non-concessional contributions cap increases to $130,000. 

00:03:27 

Eligible members can still utilise the bring forward rule, allowing contributions of up to $390,000, and that's over a three-year period. 

00:03:35 

And I should mention the bring forward thresholds are being updated as well. 

00:03:39 

Okay, great. 

00:03:40 

Total super balance threshold is shifting again, so that increases from 2 million to 2.1 million. 

00:03:47 

This threshold is important. 

00:03:48 

It affects eligibility for non-concessional contributions that we just talked about. 

00:03:53 

It affects bring forward arrangements and other super rules and limits that need to be considered as well. 

00:03:58 

Yep, great. 

00:03:59 

So there will be changes also to the transfer balance cap. 

00:04:03 

So from 1 July 2026. 

00:04:06 

The cap increases from 2 million to 2.1 million. 

00:04:09 

And this cap limits how much can be transferred into the tax-free retirement phase. 

00:04:12 

So this might be retirement income stream products with us. 

00:04:15 

It will also have an impact on defined benefit pensions. 

00:04:18 

And we'll have a look at the defined benefit income cap in a moment. 

00:04:21 

Great. 

00:04:21 

Members who have previously used some or all of their transfer balance cap will have a personal transfer balance cap. 

00:04:27 

And this may be lower than the general cap. 

00:04:29 

Your personal transfer balance cap can be viewed through your ATO account linked to myGov. 

00:04:34 

Okay. 

00:04:35 

You mentioned the defined benefit income cap. 

00:04:38 

That will be increasing from $125,000 to $131,250. 

00:04:43 

Income above this cap may attract additional tax. 

00:04:46 

This will, of course, dependent on your personal set of circumstances. 

00:04:50 

Yeah, your income for the year, et cetera. 

00:04:51 

Yeah, exactly right. 

00:04:52 

So Division 296 is something you may have heard in the news recently. 

00:04:57 

Definitely. 

00:04:57 

Yeah, a lot of media attention on that. 

00:05:00 

It introduces a tiered tax on earnings for, I suppose, what the federal government deems to be a high super balance. 

00:05:06 

Okay. 

00:05:07 

So there's no change for balances up to $3 million. 

00:05:11 

There's 15% tax on earnings for balances between 3 million and 10 million. 

00:05:15 

Yep. 

00:05:16 

And A 25% tax on earnings for balances above $10 million. 

00:05:19 

So importantly, super remains concessionally taxed for everyone. 

00:05:24 

Yeah, So no changes to the broader structure and framework. 

00:05:29 

The concession still applies across all balances. 

00:05:31 

It is simply reduced at the very top end, if you like. 

00:05:34 

Yeah, So for our defined benefit members, at the time of recording, the methodology for evaluating defined benefit values is still being finalized with the federal government. 

00:05:44 

Okay. 

00:05:44 

ESS Super, together with other defined benefit administrators and trustees, are actively working with the federal government to have these regulations finalized. 

00:05:52 

Okay. 

00:05:53 

SG calculation or super guarantee, so from 1 July 2026, 

00:05:59 

SG will be calculated on what is referred to as qualified earnings or QE rather than ordinary time earnings or OTE. 

00:06:07 

Okay, so what's the difference between those? 

00:06:09 

Yeah, so look, ordinary time earnings is a slightly narrower definition. 

00:06:13 

It generally includes ordinary hours of work. 

00:06:16 

It can exclude things like certain allowances, overtime, shift penalties or loadings. 

00:06:25 

So QE or qualifying earnings is broader. 

00:06:28 

So it captures more of what people are actually paid. 

00:06:31 

So this can include, I suppose, additional earnings that were previously excluded from OTE calculations. 

00:06:38 

I should also note that for our defined benefit members, this does not change the definition of superable salary. 

00:06:43 

Okay, that's clear. 

00:06:44 

I suppose just an important reminder, and I touched on MyGov previously, it's really important that members use their ATO portal via MyGov to check their personal thresholds and limits. 

00:06:55 

Yep. 

00:06:55 

As these are calculated based on individual balances and history. 

00:06:58 

Yeah, it's important. 

00:06:59 

Also remember, federal budget announcements must pass through Parliament before they officially become law. 

00:07:05 

Of course, yeah. 

00:07:06 

Payday Super. 

00:07:07 

So again, we talk about media attention. 

00:07:09 

Yeah, Attention around this as well. 

00:07:10 

So Payday Super commences 1 July 2026. 

00:07:14 

SG or super guarantee must be paid on payday, not quarterly. 

00:07:18 

Yeah. 

00:07:19 

And payday super invest contributions sooner. 

00:07:22 

And this allows funds more time in the market and boosting retirement savings over a lifetime. 

00:07:26 

Oh, excellent. 

00:07:27 

Thanks, Michael. 

00:07:28 

So do you have any changes that are specific to ESS super? 

00:07:32 

I do, just a few to go through. 

00:07:33 

So additional employer contributions, I might just have a chat to you about that quickly. 

00:07:37 

Excellent. 

00:07:39 

For emergency services to find benefit members who have reached their maximum multiple, from 1 July 2026, the percentage used to calculate additional employer contributions increases from 11% to 12%. 

00:07:52 

There have also been some changes to insurances. 

00:07:56 

So AIA currently provides death and TPD 

00:08:00 

death only and income protection insurance for members of our accumulation plan. 

00:08:04 

Yep, so TPD again, that's total and permanent disability. 

00:08:07 

Exactly right, yeah. 

00:08:08 

So the three-year group insurance policies, which incorporate the premium guarantee period with AIA, are expiring on 30 June 2026. 

00:08:17 

Yep. 

00:08:18 

New rates will apply from 1 July 2026 onwards. 

00:08:22 

The full details of that will be in the ESS Super's insurance guide and upcoming significant events notice. 

00:08:28 

So significant events notice is just a fancy way of saying we're going to communicate this to you clearly. 

00:08:33 

To all the members, yep, great. 

00:08:35 

There is a premium change. 

00:08:37 

There is also an introduction of parental leave premium waiver. 

00:08:41 

So I'll just explain that. 

00:08:42 

So the introduction of that waiver allows premiums to be paused for 12 months for any insured members going on parental leave for greater than six months. 

00:08:51 

I should note that this is for insurances in the accumulation plan. 

00:08:55 

It does not relate to any ill health benefits that are built into your defined benefit. 

00:09:00 

Oh yeah, good to clarify that. 

00:09:01 

With insurance premiums set to rise from 1 July 2026, it's a timely opportunity for members to review their current insurance cover and assess whether it still meets their needs. 

00:09:11 

If they're unsure or would like support, 

00:09:14 

They should probably consider seeking general financial advice to help make those informed decisions around their insurance arrangements. 

00:09:20 

Yeah, good suggestion. 

00:09:21 

That's great. 

00:09:22 

Well, look, thank you very much for coming in today, Michael, and sharing your insights. 

00:09:25 

We definitely look forward to having you on again next year. 

00:09:28 

Thanks for having me, Christian. 

00:09:29 

Well, that wraps up our episode today of Exploring Super, the exclusive podcast for ESS Super members. 

00:09:34 

We look forward to producing more content for you at ESS Super, proudly serving our members. 

00:09:39 

If you'd like more information about our investment and products, please go to essuper.com.au. 

00:09:48 

This podcast is of a general nature only and does not consider your personal circumstances, financial needs, or objectives. 

00:09:54 

Before acting on any advice contained in this podcast, please download and read the relevant product disclosure statement and target market determination, found on our website, esssuper.com.au. 

00:10:05 

Content was up to date at time of recording and budget reforms do require passing of legislation to be in force. 

00:10:10 

For more details on superannuation thresholds, please refer to the Australian Taxation Office website, www..ato.gov.au. 

00:10:19 

Financial advice is provided to members by EWS Superstaff who are authorised representatives of Guideway Financial Services Proprietary Limited. 

00:10:28 

Insurance in the accumulation plan is provided by AIA Australia Limited.