Division 296: What It Could Mean for Your Super

The Federal Government has proposed a new superannuation tax—Division 296—which, if legislated, will apply from 1 July 2025. While it’s not law yet, the implications for Australians with high super balances are significant enough to warrant early planning.

Here’s what we know so far and what it could mean for you.

What is Division 296?

Division 296 is a proposed additional tax on individuals with superannuation balances over $3 million. It aims to address what the government considers tax concessions that disproportionately benefit a small percentage of Australians.

Under this proposal:

• Individuals with a Total Superannuation Balance (TSB) over $3 million would be subject to an additional 15% tax on the earnings related to the portion above the $3 million threshold.
• This would be in addition to existing taxes, such as the 15% tax on earnings in the accumulation phase and 0% in the retirement phase.

This means some earnings could be taxed at up to 30%.

Who Could Be Affected?

While it targets individuals with larger balances, this tax could impact:

• SMSF members with concentrated assets (e.g. property or unlisted investments)
• Business owners who have transferred proceeds from a sale into super
• Individuals in retirement or near-retirement, especially those aged 55 and up
• Younger professionals whose balances may grow significantly over time

This proposal uses your Total Superannuation Balance as of 30 June each year, not just your income.

How Will Earnings Be Calculated?

Earnings for Division 296 will not be based on actual income received. Instead, they’ll be calculated using a formula:

TSB at end of the financial year

• TSB at start of the financial year
• Net contributions during the year
  = Earnings (subject to tax)

This includes unrealised gains—even if your fund’s investments increased in value but weren’t sold.

Key Features of the Proposed Tax

• Applies from 1 July 2025 if legislated
• Only affects the portion of your balance over $3 million
• Tax is calculated even if your fund didn’t sell assets
• Tax liability can be paid personally or released from your super
• Negative earnings may carry forward to offset future gains

Example: What Could It Look Like?

Let’s say your TSB grows from $3.5 million to $3.8 million in one year, with no contributions made. That’s $300,000 in growth.

Only the proportion over $3 million is taxed:

• 3.5M start → 3.8M end = $300K increase
• Proportion over cap: $500K / $3.8M = 13.16%
• Taxable earnings: 13.16% of $300K = $39,480
• Division 296 tax: 15% of $39,480 = $5,922

Planning Considerations

While Division 296 is still a proposal, it highlights the importance of:

• Reviewing super strategies—especially for those close to or over the $3M threshold
• Valuing illiquid assets—particularly in SMSFs
• Monitoring how market volatility could impact your balance
• Understanding potential long-term impacts for intergenerational wealth planning

Stay Informed, Stay Prepared

The legislation hasn’t passed yet, but early awareness is key. If your super balance is growing or you're managing an SMSF, this tax could become a relevant part of your strategy over the coming years.

Speak with your RJS Strategic Planner to assess your current position and consider steps to prepare for this possible change.

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