By Paul Feeney, Founder and Chief Executive Officer, Otivo
Here's something that changed on 1 July 2026 and that almost nobody has noticed. The tax on money going into super is 15%. The second marginal income tax rate — the one that applies between $18,201 and $45,000 — is now also 15%. For the first time, there's a band of Australian earners for whom the super tax concession has effectively vanished. For everyone above it, the concession is as substantial as it has ever been. Understanding why means looking at the three separate points at which super gets taxed, because the story is different at each one.
Quick answer
Super is taxed at three points and lightly at all of them. Concessional contributions are generally taxed at 15% going in, earnings inside an accumulation account at up to 15%, and benefits from a taxed source are generally tax free from age 60. As at August 2026, marginal individual income tax rates run from 15% to 45% plus the 2% Medicare levy, so the size of the concession depends entirely on which rate you'd otherwise be paying.
The three tax points
Most explanations of super tax collapse into one number. There are three, and they behave differently.
- Going in. Concessional contributions — employer super guarantee, salary sacrifice, and personal contributions you claim a deduction for — are generally taxed at 15% as they enter the fund. Non-concessional contributions, made without claiming a deduction, aren't taxed on the way in because the money has already been taxed.
- While it's there. Earnings on investments inside an accumulation account are taxed at a maximum of 15%. Once an account moves to the retirement phase and supports an income stream, earnings on the assets backing it are generally not taxed, subject to the transfer balance cap.
- Coming out. Benefits paid from a taxed source are generally tax free from age 60, whether taken as a lump sum or as income stream payments.
Where does the concession actually come from?
From the gap between 15% and the rate that dollar would otherwise face. That's the whole mechanism, and it's why the concession is worth wildly different amounts to different people.
For someone on $150,000, income above $135,000 is taxed at 37% plus the 2% Medicare levy. A concessional contribution redirects that dollar into a 15% environment — a gap of 24 percentage points. For someone on $80,000, the relevant marginal rate is 30% plus the levy, so the gap is 17 points.
For someone on $40,000, the marginal rate is 15% plus the 2% levy. The gap has narrowed to almost nothing. And below the $18,200 tax-free threshold there's no gap at all — the fund still deducts 15% on a concessional contribution that wasn't going to be taxed in the first place. The concession runs in reverse.
That's a genuinely new feature of the system in 2026-27, and it's a consequence of the second marginal rate falling from 16% to 15% on 1 July 2026 while the contributions tax rate stayed where it was.
What about at the top of the scale?
There's a limit there too. Individuals whose combined income and concessional contributions exceed $250,000 in a financial year pay an additional 15% on the concessional contributions above that threshold, taking the total to 30% rather than 15%. That's Division 293 tax, and income for the threshold includes taxable income, reportable fringe benefits, net investment losses and the concessional contributions themselves.
Thirty per cent is still well short of 45% plus the levy. Division 293 narrows the concession for high earners; it doesn't remove it.
A separate limit now applies to very large balances. Division 296 is legislated and took effect from 1 July 2026, applying additional tax to earnings attributable to balances above $3 million, with the first assessment based on balances at 30 June 2027.
What do you give up in exchange?
Access, and it's not a small thing. Super is preserved until you meet a condition of release. For anyone born on or after 1 July 1964, preservation age is 60, and reaching it isn't enough on its own — you also need to satisfy a condition such as retiring, ceasing an employment arrangement at or after 60, or reaching 65.
So a 42-year-old weighing a voluntary contribution is trading roughly two decades of access for the tax treatment. Money in super can't meet a mortgage repayment, cover a redundancy or fund a house deposit. That's not a flaw in the design; it's the reason the concession exists.
There's a second trade-off worth naming. Fees and investment performance both affect what the concession is ultimately worth, and neither is fixed. A tax advantage compounding on top of an unsuitable investment option is a smaller advantage than it looks. Otivo's super investment options module works through what's available inside the fund you already have.
Does any of this move the number that matters?
It can. Customers who follow Otivo's advice in full could be better off on average by $180,356 in today's dollars by retirement through optimised contributions. That figure comes from the interaction described above — putting the right dollars through the 15% environment at the right time, within the caps. Otivo's salary sacrifice module models what that looks like against your own income and cash flow. Otivo Pty Ltd holds AFSL and Australian Credit Licence No. 485665.
Frequently asked questions
Is super really tax free after 60?
Benefits from a taxed source are generally tax free from age 60. Some benefits include an untaxed element — most commonly from certain public sector schemes — and those are treated differently. Earnings in the retirement phase are also subject to the transfer balance cap, which is $2.1 million for 2026-27.
Why is the contributions tax 15% and not something else?
It's a flat rate set well below most marginal rates, designed to encourage saving for retirement without indexing the benefit to income. Division 293 was introduced in 2012-13 to limit how large that benefit could become at the top of the scale.
Does the 15% apply to every contribution?
No. It applies to concessional contributions. Non-concessional contributions aren't taxed going in, because they're made from income that has already been taxed. Government co-contributions and the low income super tax offset work differently again.
Are super earnings taxed at 15% every year?
Up to 15% in an accumulation account. The effective rate is often lower, because franking credits, capital gains discounts and the timing of realised gains all affect what's actually paid. Figures vary by fund and by investment option.
Sources
- Australian Taxation Office, Tax rates — Australian residents, 2026-27.
- Australian Taxation Office, Key superannuation rates and thresholds, 2026-27.
- Australian Taxation Office, Division 293 tax.
- Australian Taxation Office, Conditions of release.
- Treasury Laws Amendment (More Cost of Living Relief) Act 2025.
- Otivo customer outcome data.
Disclaimer
The information in this communication is current as at August 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.