Proposed Division 296 legislation: A new tax on superannuation balances
28/05/2025
With the Federal Election now run and won, the Federal Labor Government will re-introduce its proposed legislation – Division 296 – Better targeted superannuation concessions.
The legislation targets individuals with a Total Superannuation Balance (TSB) above $3 million held across all super funds regardless of accumulation or retirement phase.
Under the previously proposed legislation that lapsed prior to the election, the proposed start date was 1 July 2025.
The Division 296 tax introduces a 15% tax on earnings from superannuation balances that exceed $3 million at the end of each financial year.
This tax does not apply to the total superannuation balance, only earnings attributed to the balance above $3 million.
The current proposed legislation does not index the $3 million threshold.
Calculating the Division 296 tax liability
Calculation of earnings
Earnings = (TSB at the end of the current year + Withdrawals – Net Contributions) – TSB previous financial year
Calculation of proportion earning attribute to balances above $3 million
Proportion of earnings = (TSB at the end of the current year – $3 million)/TSB previous financial year
Calculation of tax liability
Tax liability = 15% x Earnings x Proportion of Earnings
Example calculation
Pete has the following balance in superannuation as of:
- 30 June 2026 – $4,000,000
- 30 June 2027 – $4,300,000
During the year Pete contributed $30,000 to superannuation
During the year Pete withdrew via an account-based pension $80,000
Earnings = ($4,300,000 + $80,000 – $30,000) – $4,000,000 = $350,000
Proportion of Earnings above $3 million = ($4,300,000 – $3,000,000)/ $4,000,000 = 32.5%
Tax Liability = 15% x $350,000 x 32.5% = $17,062.50
Payment of Division 296 tax liability
The individual will choose how to pay, either paying the tax personally or releasing funds from superannuation.
Taxation of unrealised gains
As a result of the calculation, Division 296 taxes unrealised gains. This means that superannuation members will be taxed on the increase in the value of their investments even if the investment has not been sold or disposed of.
Some superannuation funds that hold illiquid assets such as property or unlisted investments may be compelled to sell assets prematurely or in adverse market conditions.
Division 296 losses
When the earnings are negative, these amounts can be carried forward so long as the TSB is greater than $3 million at the start or end of the year. These amounts can be offset against future positive earnings before applying the proportion calculation.
How SW can help
At this stage it is unclear what the final legislation will look like, or if indeed the start date will be 1 July 2025.
Valuations will be scrutinised for assets that do not have a readily available market price such as property and unlisted investments.
Keeping funds in superannuation remains the most tax-effective choice for some members.
There is still time to assess the impact of the proposed legislation to implement strategies prior to 30 June 2026.
Superannuation members should wait until the final legislation is passed before withdrawing large superannuation balances. Once funds are outside superannuation you may not be able to re-contribute them back.
You should seek professional advice from your SW contact as each superannuation member’s taxation circumstances will differ.
