The Australian Government has proposed the introduction of a new tax measure, Division 296, targeting high superannuation balances. This newsletter provides an overview of the latest developments, how the tax will be calculated, who will be affected, and what actions you may need to consider.
What is Division 296 tax?
Division 296 is a proposed additional 15% tax on the earnings attributed to the portion of an individual’s total superannuation balance (TSB) that exceeds $3 million. This tax is in addition to the existing 15% concessional tax on superannuation fund earnings, potentially resulting in a combined effective tax rate of up to 30% on some super earnings for those impacted.
- Start date: Expected to apply from 1 July 2025 (subject to final passage of legislation).
- Threshold: Only applies to individuals with a TSB greater than $3 million at the end of a financial year, i.e. the first relevant test date is 30 June 2026. The $3 million threshold is not indexed.
- Scope: Applies to both realised and unrealised gains, which has raised industry debate regarding valuation and fairness.
- Who is affected: All types of superannuation funds, including SMSFs.
- Who pays the tax: The Div 296 assessment will be issued to the member of the Fund that has a balance over $3m. However, the tax can be paid by the Fund.
How is the tax calculated?
The ATO will calculate the Division 296 tax using a proportionate formula based on the movement of your superannuation balance across financial years. Here’s a step-by-step outline:
1. Calculate net earnings: Net Earnings = (TSB at end of year + Withdrawals – Net Contributions) – TSB at start of year.
2. Determine proportion above $3 million: Proportion = (TSB at end of year – $3,000,000) / TSB at end of year
3. Taxable earnings: Taxable Earnings = Net Earnings X Proportion
4. Apply 15% tax: Division 296 Tax Liability = Taxable Earnings X 15%
Example calculation:
- TSB on 30 June 2026: $4,000,000
- TSB on 30 June 2025: $3,500,000
- Contributions during the year: $100,000
- Withdrawals during the year: $50,000
Net Earnings = $4,000,000 + $50,000 – $100,000 – $3,500,000 = $450,000
Proportion above $3 million = ($4,000,000 – $3,000,000) / $4,000,000 = 25%
Taxable Earnings = $450,000 x 25% = $112,500
Division 296 Tax = $112,500 x 15% = $16,875
Payment and compliance
The ATO will issue a notice of assessment after the end of the financial year (first assessments from July 2026). Taxpayers will have 84 days to pay, with the option to:
- Release funds from their superannuation account(s).
- Pay from personal funds.
- Use a combination of both.
If not paid within the period, interest may apply.
Special considerations
- Negative earnings: If your superannuation earnings above $3 million are negative in a year, these losses can be carried forward to offset future Division 296 tax liabilities.
- Defined benefit interests: Special rules and possible deferral options may apply.
- Exemptions: Some individuals (e.g., child recipients, structured settlement recipients) may be exempt.
Legislative status and outlook
The Division 296 Bill has passed the House of Representatives but was previously blocked by the Senate due to concerns about taxing unrealised gains. With the current government’s Senate position, the Bill is expected to be reintroduced and likely passed.
The precise details may change before the final enactment. We will keep you updated on any legislative developments.
Published 6 June, 2025