The Australian Government is moving ahead with its plan to implement an additional 15% tax on earnings associated with total superannuation balances exceeding $3 million. First announced in February 2023, this measure aims to rebalance the super system, which has long provided generous tax concessions that disproportionately benefit high-balance account holders.

The proposed legislation — often referred to as the “Division 296 tax” — is scheduled to take effect from 1 July 2025, and is expected to be reintroduced to Parliament now that it has resumed.

What Is the Division 296 Tax and Who Does It Affect?

Currently, earnings on superannuation balances in the accumulation phase are taxed at a flat rate of 15%.

Under the proposed changes:

  • Individuals with a total superannuation balance (TSB) of $3 million or less will see no change.
  • Individuals with a TSB exceeding $3 million will incur an additional 15% tax on a proportion of their earnings related to the excess.
  • This tax is not paid by the fund, but personally by the individual.

Importantly, this new tax is based on an estimated earnings calculation, which may include unrealised capital gains — meaning tax could apply to increases in asset values even if those assets haven’t been sold.

How Will the Tax Be Calculated?

The calculation is complex and includes:

  • The value of your total superannuation balance at the beginning and end of the year;
  • Add-backs for withdrawals and reductions for contributions;
  • Apportionment of “earnings” based on the excess amount above $3 million.

Example Calculation (Simplified):

Suppose your super fund holds a property worth $3 million at the start of the year, and its value increases to $3.5 million by year-end. You make no contributions or withdrawals, and earn no income. The additional tax could be calculated as follows:

  • Excess TSB: $3,500,000 − $3,000,000 = $500,000
  • Proportion over threshold: $500,000 ÷ $3,500,000 = 14.29%
  • Taxable “earnings”: $500,000 × 14.29% = $71,450
  • Division 296 tax: $71,450 × 15% = $10,717.50

So, $10,717.50 in additional tax would be payable — even though no actual income was realised.

This could present liquidity issues, particularly for those with illiquid assets such as property, as you may need to pay the tax from outside your super fund unless you choose to sell assets.

Payment Process

The ATO will notify you of any Division 296 tax liability after the end of the 2025–26 income year. You’ll be able to:

  • Pay the tax personally (from non-super assets); or
  • Elect to have it paid directly from your super fund(s).

If you have multiple super funds, you may nominate the fund from which the tax is to be withdrawn.

Next Steps for Affected Individuals

With the Division 296 tax not yet legislated but highly likely to pass, those with large super balances should begin preparing now. Consider the following actions:

  • Review your current superannuation structure and projected balance as of 1 July 2025;
  • Model potential tax impacts under different scenarios (e.g. asset revaluations, contributions, withdrawals);
  • Seek advice from a licensed financial adviser or tax professional, especially if your balance is approaching or exceeds the $3 million threshold;
  • Avoid making any significant structural changes without carefully weighing the long-term consequences.

Final Thought

While this tax aims to make superannuation fairer, it introduces complexity and potential cash flow challenges for affected individuals. If you’re likely to be impacted, early strategic planning is essential to manage both tax exposure and liquidity risk effectively.

For personalised guidance on how the Division 296 tax may affect your superannuation, speak with us today!

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