Division 296 Tax: What Australia’s $3 Million Superannuation Tax Means for You

What Is Division 296 Tax?

Division 296 Tax is a proposed new tax measure targeting high-balance superannuation accounts in Australia. While not yet enacted, it is expected to come into effect from 1 July 2025, with the first tax assessments based on superannuation balances as at 30 June 2026.

This legislation introduces an additional 15% tax on earnings related to the portion of your total superannuation balance that exceeds $3 million at the end of each financial year. Importantly, the $3 million threshold applies to your combined superannuation accounts (your Total Super Balance), not just a single fund.

For affected individuals, this means some super earnings could be taxed at up to 30%—the existing 15% concessional tax, plus the new 15% Division 296 Tax.

Who Pays Division 296 Tax?

Division 296 Tax is a personal tax liability. It is assessed against the individual, not the super fund itself. If you face this tax and prefer not to pay it out-of-pocket, you can elect to have your super fund pay the liability on your behalf by authorising a release through the ATO.

How Is Division 296 Tax Calculated?

Here’s a step-by-step summary of the calculation process:

1. Determine Your Total Super Balance (TSB):
   Add up the value of all your superannuation accounts as at 30 June each year.
2. Calculate Earnings:
   Earnings are calculated as the growth in your super balance, including investment income and asset growth (even if assets haven’t been sold, i.e., unrealised gains).
   Formula:
   Earnings = TSB at 30 June (current year) – TSB at 30 June (previous year) – contributions + withdrawals
   (Withdrawals include pension payments, lump sums, and early super releases.)
3. Work Out the Proportion Over $3 Million:
   % over $3M = (TSB current year - $3M) / TSB current year
4. Apply the 15% Tax:
   Only the earnings attributable to the balance above $3 million are taxed.
   Division 296 Tax = Earnings × Proportion Over $3M × 15%

Example Calculation

Jane’s superannuation details:

• 30 June 2025 TSB: $3,125,000
• 30 June 2026 TSB: $3,650,000
• Contributions during the year: $15,000
• Pension payment: $160,000

Earnings:

$3,650,000 – $3,125,000 – $15,000 + $160,000 = $670,000

Proportion over $3M:

($3,650,000 – $3,000,000) / $3,650,000 = 17.81%

Division 296 Tax:

$670,000 × 17.81% × 15% = $17,899

Jane’s Division 296 Tax liability for the year: $17,899 (personal tax).

Key Considerations and Issues

1. Taxing Unrealised Gains

Division 296 Tax includes unrealised gains—meaning you may be taxed on increases in asset value even if those assets haven’t been sold and no cash has been received. This can create cash flow challenges, especially for Self-Managed Super Funds (SMSFs) holding illiquid assets like property or private investments, where accurate valuations can also be complex and costly.

2. No Refunds for Losses

If your super balance falls in a future year, you won’t receive a refund for Division 296 Tax paid on prior unrealised gains. Instead, losses can be carried forward to offset future positive earnings before this tax is calculated again.

3. No Indexation of the $3 Million Threshold

The $3 million cap is not indexed to inflation. Over time, more Australians will be impacted as super balances grow due to compulsory contributions and compounding returns.

Next Steps and Advice

Division 296 Tax represents a significant change for high-balance superannuation members. If your total super balance is approaching or exceeds $3 million, it’s important to understand your potential exposure and consider the implications for your retirement planning.

For a personalised discussion about Division 296 Tax or other superannuation strategies, contact TIP Group’s SMSF specialist, Meleena Mitchell, at 0430 082 025 or meleena.mitchell@tipgroup.com.au.

Disclaimer:

This article provides general information only and does not consider your personal circumstances. Please consult a qualified financial adviser for advice tailored to your needs. TIP Group is not liable for any financial decisions made based on this information.