As one of the Executive Directors of HFB and the head of the SMSF Superannuation Team, I want to provide clarity on the proposed Division 296 tax and offer practical guidance for those who may be affected.
The Federal Government has proposed that Division 296 will apply from 1 July 2025, introducing an additional 15% tax on certain superannuation earnings for individuals whose total superannuation balance (TSB) exceeds $3 million at the end of the financial year. However, it’s important to note that this measure is not yet law and remains subject to passage through both Houses of Parliament.
How Division 296 would work (if passed)
If your TSB exceeds $3 million at 30 June 2025:
- A proportion of your annual superannuation earnings above that threshold would be taxed at an additional 15%.
- The tax would be assessed personally, and could be paid from your superannuation account or your own funds.
- “Earnings” for this purpose may include both realised and unrealised gains, adjusted for certain contributions and withdrawals (based on the current prosposed legislation).
- Exclusions would apply for structured settlements, children receiving pensions, and deceased individuals.
Your TSB include all superannuation interests across APRA-regulated funds, SMSFs, and defined benefit schemes.
Examples
- Sam has a $4 million balance at 30 June, with $120,000 growth over the twelve months. Since 25% of his balance is above the threshold, $30,000 would be taxable, resulting in a $4,500 Division 296 tax.
- Chris withdraws $200,000 before 30 June, bringing his balance below $3 million. He would avoid the tax for that year.
- Lisa inherits a death benefit pension, increasing her balance from $2 million to $4.5 million. Only the investment growth is taxed, but her total balance may still trigger a liability.
What you should consider
While we await the final outcome of the legislation, it’s wise to prepare:
- Review liquidity and cashflow to ensure your fund can meet potential future tax obligations.
- Update asset valuations—especially for property and unlisted assets.
- Estimate your combined super balances and plan for any large transactions.
- Document valuations thoroughly, particularly for SMSFs.
- Seek tailored advice before making structural changes to your fund or investment strategy.
Final thoughts
Division 296 represents a significant shift in superannuation taxation. The inclusion of unrealised gains and the non-indexed $3 million threshold means more individuals may be affected over time. While the measure is not yet law, staying informed and planning ahead is essential.
If you have questions or would like to discuss how this may affect your SMSF strategy, please don’t hesitate to reach out. Our team is here to support you with expert guidance and practical solutions.