Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some super earnings for individuals if their total super balance (TSB) is above $3 million as of 30 June of the relevant income year. This measure isn’t law yet and needs to pass both Houses of Parliament. At the time of writing, the start date hadn’t been confirmed, although the Government initially aimed to have the measure apply from 1 July 2025, with the first tax bills to be sent out sometime after 30 June 2026.
How does it work?
While everyone is waiting to see if this measure will become law, let’s assume that the Government passes a law, which is consistent with the Government’s announcements to date. If so:
- If your TSB exceeds $3 million on 30 June, a portion of your annual super earnings over that threshold will be taxed at an additional 15%.
- The tax is assessed to you and can be paid from your own funds or super.
- Superannuation earnings for this purpose reflect whether there is an increase in your net super balance for the year, adjusted for certain contributions and withdrawals.
- Some exclusions apply: children on super pensions, the deceased and structured settlements.
Keep in mind that your TSB is the aggregate of all Australian superannuation interests held at the end of the income year.
The first test date will be 30 June 2026 if the start date is 1 July 2025. An individual’s TSB at this date and each following 30 June will determine if they will have a Division 296 tax liability for that specific income year. Individuals with TSB over $3 million on 30 June will have a Division 296 tax liability for that income year.
What can you do?
- Check your super fund’s liquidity and cash flow planning for future tax payments.
- Make sure your asset valuations are current
- Make an estimation of your combined super balances and plan for any large transactions
- Document asset values, especially for SMSF members
- Seek professional advice before making any changes
While we await the outcome of the legislation passing through Parliament and any potential changes to the proposed measures, if you have any questions or concerns in the meantime, please don’t hesitate to get in touch, we’re here to help.