Navigating Division 296 Superannuation Tax: What You Need to Know

The proposed Division 296 superannuation tax could impact Australians with large super balances. If passed into law, this Federal Government measure would apply an additional 15% tax on certain super earnings where a person’s total super balance exceeds $3 million, as at 30 June of the relevant income year.

Although not yet law, the Government hopes to start this measure from 1 July 2025, with tax assessments issued after 30 June 2026.

How It May Work

If your Total Super Balance (TSB) exceeds $3 million at 30 June, only a portion of your annual superannuation earnings above that threshold will be subject to an additional 15% tax. This tax is assessed to you personally and can be paid either from your super fund or from your own personal funds. For the purposes of this measure, “earnings” are calculated based on the increase in your net super balance over the year, adjusted for certain contributions (such as inheritance via a death benefit pension) and any withdrawals.

Example 1 – Sam

• Super balance at 30 June: $4 million
• Annual investment growth: $120,000
• Proportion above $3 million: ($4m – $3m) / $4m = 25%
• Taxable earnings: $120,000 × 25% = $30,000
• Additional tax: $30,000 × 15% = $4,500

Example 2 – Lisa

• Lisa receives a death benefit pension, increasing her super from $2 million to $4.5 million
• The inherited amount is excluded from taxable earnings
• However, any investment growth from 1 July 2025 onward is considered earnings
• If Lisa’s balance remains over $3 million at 30 June 2026, she may be liable for Division 296 tax

What Should You Be Doing Now?

With the potential implementation of this measure approaching, it’s important to start planning ahead. Key steps to consider include:

• Review your super fund’s liquidity and cash flow to ensure you can meet any potential future tax obligations
• Ensure asset valuations are current, particularly if you have an SMSF
• Estimate your combined super balances, especially before undertaking large contributions or withdrawals
• Maintain detailed documentation of asset values for accurate reporting
• Seek professional advice tailored to your situation before making any significant changes to your super strategy

Although Division 296 is not yet law, the proposed start date of 1 July 2025 has already passed, and legislative developments may progress quickly. If your superannuation balance is near or above the $3 million threshold, it’s wise to act now and be well-prepared.

Quote of the month

For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
– Winston Churchill –

Have questions or need guidance? Get in touch – we’re here to help you navigate what this could mean for your financial future.