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Division 296 Super Tax: Understanding the Proposal and Preparing Ahead


Division 296 Super Tax
Division 296 Super Tax

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The Federal Government has proposed a controversial reform known as the Division 296 super tax, which would impose an additional 15% tax on a portion of superannuation earnings for individuals whose Total Superannuation Balance (TSB) exceeds $3 million. 


This measure is not yet law and must still pass both Houses of Parliament. If enacted as proposed, the legislation is expected to take effect from 1 July 2025, with the first test date set for 30 June 2026. An individual’s TSB on that date—and on each subsequent 30 June—will determine whether a Division 296 tax liability arises for the corresponding income year. 


How Division 296 Works

If the legislation is passed in line with the current proposal, individuals with a TSB exceeding $3 million as at 30 June of a given income year will be subject to an additional 15% tax on the proportion of their annual superannuation earnings that corresponds to the excess balance. 


  • This tax is assessed to the individual and may be paid either from their super fund or from personal funds. 

  • For this purpose, superannuation earnings refer to the annual increase in net super balance, after adjustments for specific contributions (such as a death benefit pension) and withdrawals. 

  • The TSB includes the aggregate value of all superannuation interests held in Australia, including balances with APRA-regulated funds, Self-Managed Super Funds (SMSFs), and certain defined benefit schemes. 

  • Some exclusions apply—such as super pensions for minors, structured settlements relating to personal injury, and deceased individuals. 

     

A Division 296 tax liability will only arise if an individual’s TSB exceeds $3 million as at 30 June of the relevant income year. 


Case Examples: How Division 296 May Apply

Case 1: Alex’s Superannuation Account 


  • Superannuation balance as of June 30: $3.76 million

  • Annual investment income: $100,000

  • Excess proportion: ($3.76 million – $3 million) ÷ $3.76 million = 20%

  • Taxable portion of the income: $100,000 × 20% = $20,000

  • Additional tax payable: 15% × $20,000 = $3,000


Case 2: Emma’s Inheritance 


Although the inherited amount itself is not included in the taxable income, it is still counted in Emma's Total Superannuation Balance (TSB) as of June 30. As her balance exceeds the $3 million threshold, she may be required to pay Division 296 tax on the proportionate investment income related to the excess amount.


For illustration, let's assume Emma's annual investment income is $80,000 (excluding the inherited amount). The calculation is as follows:


  • Superannuation balance as of June 30: $4.2 million

  • Annual investment income (excluding the inheritance): $80,000

  • Excess proportion: ($4.2 million – $3 million) ÷ $4.2 million = 28.57%

  • Taxable portion of the income: $80,000 × 28.57% ≈ $22,856

  • Additional tax payable: 15% × $22,856 ≈ $3,428


Although Emma did not make any additional contributions, the inheritance caused her superannuation balance to exceed the threshold, resulting in an additional tax liability on the corresponding portion of the investment income.


How to Prepare for Division 296

While the legislation has not yet been passed, individuals with high superannuation balances should begin preparing now to avoid future surprises: 


  • Assess and track the combined super balances of yourself and your spouse 

  • Keep asset valuations current, especially for non-liquid assets in SMSFs 

  • Plan for liquidity, ensuring sufficient cash is available for potential tax payments 

  • Review major transactions or inheritances in advance to estimate their impact on your TSB 

  • Document all asset value movements for accurate year-end reporting 


We will continue to monitor the legislative process closely. If you have any questions about how these proposed changes may affect your superannuation or tax obligations, please don’t hesitate to contact our team—we are here to provide you with timely and professional advice and support. 


Source: Div 296 super tax and practical things to consider, Knowledge Shop website.

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