Further changes announced 13 October 2025 – see updated article.
With the commencement of Parliament, there will be increased focus on the re-introduction of Division 296 (Div 296). Prior to the election the legislation did not pass through the Senate. However, since the election the landscape of the House and Senate has changed bringing with it an opportunity for the Government to pass the legislation.
Div 296 tax targets individuals with superannuation balances exceeding $3 million, imposing an additional 15% tax on earnings attributable to the excess portion.
In the previous draft legislation, earnings included “unrealised” capital gains.
Key Features of Div 296
- Applicability: The Div 296 tax applies to individuals with total superannuation balances above $3 million. This tax is calculated annually on the proportion of the balance that exceeds the threshold.
- Tax Rate: A flat tax rate of 15% is applied to the calculated "earnings" on the excess portion of the superannuation balance. This includes both realised and unrealised gains.
- Non-Indexed Threshold: The $3 million threshold is not indexed. This means that over time, more Australians may fall into this tax bracket due to the effects of compounding.
- No Refunds for Negative Returns: If the superannuation balance falls in future years, there will be no refunds for tax previously paid on unrealised gains that have since reversed.
- Cash Flow Challenges: Individuals or the super fund may be required to sell assets to fund a tax liability based on growth. The tax liability is levied on the individual, but an election could be made for the Fund to pay.
- Double Taxation: When the super fund eventually sells an asset that has grown and has had Div 296 tax paid on the growth, the super fund is still liable to pay capital gains tax on the total realised capital gain. There is no offset for a tax levied individually and one levied against the super fund itself.
How will the tax be calculated?
We expect that the additional 15% tax will be calculated based on member earnings associated with the adjusted balance exceeding $3 million, and earnings associate with the total superannuation balance (TSB) less than $3 million will continue to be taxed at 15%. Broadly, the adjusted TSB is calculated as the member balance at the end of the income year plus any withdrawals and less any contributions made.
Distinguishing this tax from nearly all others, is that unrealised earnings (the increase in market value of assets) will be subject to the Div 296 tax.
An example of how the tax is meant to work is as follows:
Jess has a TSB of $4 million on 30 June 2025, and $4.5 million on 30 June 2026. During the 2025–26 income year, Jess made concessional contributions of $27,500 and the superannuation fund paid 15% tax in relation to these contributions, i.e. $23,275 net of tax.
Her adjusted TSB is calculated as $4.5 million minus $23,375 that amounts to a total of $4,476,625. Following this, the earnings for the fund, for Division 296 purposes, is $4,476,625 (closing less opening).
Jess’s superannuation earnings for Division 296 tax in the 2025–26 income year is calculated as $476,625 and, because her TSB is above $3 million, certain earnings within the fund will be subject to Division 296 tax.
The percentage of Jess’s superannuation earnings above the $3 million threshold is calculated as 33.33% (($4.5 million minus $3 million)/$4.5 million). This means $158,859 (33% of $476,625) will be subject to Division 296 tax and an additional 15% will be levied on this amount giving rise to a tax liability of $23,829. |
What are the potential changes?
There has been a lot of discussion about potential changes to the legislation, with the re-introduction of Div 296 some of these potential changes are:
- Reducing the limit from $3 million to $2 million but indexing the limit.
- Reducing the limit to $2 million but increasing the tax rate and not including unrealised capital gains as earnings.
What is the Impact?
The new measure will have an immediate impact any individual with a total super balance over $3 million.
Longer term there will also estate planning implications, impacting super funds that have an asset balance of above $3 million.
Div 296 will also have significant impact to those individuals who are asset rich but cash poor, as the forced sale of assets, to pay the tax liability, will have far reaching implications.
The first test date for Div 296 is 30 June 2026. Based on the previous draft legislation if an individual’s total superannuation balance is under $3 million as at 30 June 2026, then no Div 296 is payable.
There is no need to do anything at this stage as the legislation is not confirmed yet, and we have until 30 June 2026 to implement any strategies.
How can Moore Australia help?
Our experienced superannuation teams can provide the necessary tax and investment advice with managing the new tax. We are closely monitoring the progress of the proposed legislation. It is essential for affected individuals to understand the implications of this tax and to seek professional advice to navigate the potential challenges it presents.