Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some superannuation earnings for individuals if their total superannuation balance (TSB) is over $3 million as at 30 June of the relevant income year.
This measure is not yet law and must still pass both Houses of Parliament. At the time of publication, the start date had not been confirmed, although the Government was originally hoping that the measure would apply from 1 July 2025, with the first tax bills to be sent out sometime after 30 June 2026.
How does it work?
While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date. If so:
- If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%.
- The tax is assessed to you personally and can be paid from your super or your own funds.
- Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals.
- Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased.
It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year.
If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year.
Examples
Sam’s account
- 30 June super balance: $4 million.
- Annual growth: $120,000.
- Portion above $3m: ($4m–$3m)/$4m = 25%
- Taxable earnings: $120,000 × 25% = $30,000
- Extra tax: $30,000 × 15% = $4,500
Chris withdraws
- Chris withdraws $200,000 before 30 June so his TSB is below $3 million at year end.
- Chris will not pay Division 296 tax for that year.
Lisa’s inheritance
- Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension.
- Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability.
What can you do?
- Review your super fund liquidity and cashflow planning for future tax payments
- Ensure your asset valuations are up to date
- Estimate your combined super balances and plan for any large transactions
- Document asset values, especially for SMSF members
- Seek tailored professional advice before making any changes
While we are waiting to see whether the legislation passes through Parliament and whether any significant amendments or adjustments are made to the proposed measures, if you have any questions or concerns around this in the meantime, reach out – we’re here to help.
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, professional advice should be obtained.
