WHAT IS THE DIVISION 296 TAX?
The Division 296 tax is a new, additional 15% tax on the earnings related to the portion of your Total Superannuation Balance (TSB) that exceeds $3 million. It is intended to apply annually, calculated based on the growth in your super balance, including unrealised capital gains.
This tax is in addition to the existing:
• 15% tax on earnings in accumulation phase
• 0% tax on earnings in retirement/pension phase (subject to transfer balance cap)
The tax is designed to target high-balance super accounts and reduce tax concessions at the upper end of the system.
Who Will Be Affected?
You may be affected by this tax if your combined superannuation balances across all funds (including SMSFs, retail, industry, and public sector funds) exceed $3 million at the end of a financial year.
Important considerations:
• It is calculated per individual, not per fund.
• The balance is assessed using the Total Superannuation Balance (TSB), which includes:
o Accumulation phase accounts
o Retirement phase pension accounts
o Defined benefit interests (calculated using a special formula)
o Certain legacy pensions
If your TSB is under $3 million, you will not be subject to Division 296 tax.
When Does It Start?
The proposed Division 296 tax will commence on 1 July 2025.
The first year of assessment will be for the 2025–26 financial year.
The ATO will use your 30 June 2026 Total Super Balance to determine if the tax applies.
The first tax assessments will be issued sometime in 2026–27.
How Is the Tax Calculated?
The tax is based on growth in your super balance, including unrealised gains.
Formula:
Earnings = TSB (this year) – TSB (last year) + withdrawals – contributions
The portion of earnings attributable to balances over $3M will be taxed at 15%.
How Will the Tax Be Paid?
Each year, the ATO will:
1. Calculate your Total Super Balance and Division 296 liability.
2. Issue a personal tax assessment (similar to Division 293 notices).
3. Allow you to pay the tax from personal funds, or
4. Elect to release funds from your superannuation to pay the liability.
Note:
• The tax is levied on you personally, not your SMSF.
• You will have up to 60 days to make a payment or release election.
Division 296 Tax – Working Example
Let’s walk through how the Division 296 tax would be calculated for a hypothetical individual:
📌 Scenario – SMSF Member Details
Details
Amount
Total Super Balance (TSB) at 30 June 2025
$3,800,000
Total Super Balance at 30 June 2026
$4,100,000
Personal contributions during the year
$50,000
Withdrawals during the year
$20,000
✅ Step 1: Calculate Earnings
Use the formula provided in the legislation:
Earnings = TSB (end of year) – TSB (start of year) + Withdrawals – Contributions
Substitute the values:
Earnings = $4,100,000 – $3,800,000 + $20,000 – $50,000
= $270,000
✅ Step 2: Determine Proportion Over $3 Million
We now calculate what portion of the balance is over $3 million:
Proportion = (TSB at 30 June 2026 – $3,000,000) ÷ TSB at 30 June 2026
= ($4,100,000 – $3,000,000) ÷ $4,100,000
= $1,100,000 ÷ $4,100,000
= 26.83%
✅ Step 3: Apply the Proportion to the Earnings
Taxable Earnings = $270,000 × 26.83%
= $72,441
✅ Step 4: Apply the 15% Division 296 Tax
Division 296 Tax Payable = $72,441 × 15%
= $10,866.15
The ATO will issue a personal tax notice for $10,866.15.
Is This a Tax on Unrealised Gains?
Yes, Division 296 includes unrealised gains in its earnings calculation.
This is a key departure from how current super taxes work. Under existing rules, Super Funds generally pay tax on realised income and gains (e.g. when an asset is sold). Under Division 296, even paper increases in value — say, on property or shares held in the fund — will be taxed, even if no sale occurs.
• This can lead to liquidity concerns, especially for SMSFs holding illiquid assets like property.
• A carry-forward loss provision will apply if there is a negative earnings year, which can be used to offset future Division 296 tax liabilities.
Can I Reduce or Manage My Exposure?
If your balance is near or above $3 million, there are several strategies that might reduce exposure, including:
• Reviewing contribution strategies: Consider if further non-concessional contributions will push you above the $3M threshold.
• Asset revaluation: Ensure all SMSF assets are accurately and reasonably valued as of 30 June each year.
• Withdrawing funds: In some cases, members may wish to commence pension phase or withdraw funds (where eligible) to reduce TSB.
• Spouse contribution splitting: Spreading balances across spouses may help reduce one person’s TSB.
• Revisiting investment structures: Some clients may consider shifting high-growth or illiquid assets outside of super.
• Estate and succession planning: This is a good opportunity to align your SMSF strategy with your long-term retirement and estate goals.
Always seek personalised financial and tax advice before implementing any strategy.
Current Status of the Division 296 Tax Legislation
As of June 2025, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, which includes the proposed Division 296 tax, has not yet passed both Houses of Parliament.
Please note that the rules are still subject to change before the legislation is enacted.
