Our Insights

Overview of the Proposed Division 296 Tax 

The Australian Government has proposed a new tax measure, known as Division 296, targeting individuals with total superannuation balances exceeding $3 million. Set to commence on 1 July 2025, this measure introduces an additional 15% tax on earnings corresponding to the portion of the balance above the $3 million threshold as at 30 June 2026. This effectively increases the tax rate on those earnings from 15% to 30%.  

 Notably, the tax applies to both realised and unrealised gains, meaning that increases in asset values, even if not sold, will be subject to taxation. This aspect has raised concerns among stakeholders, particularly those with self-managed superannuation funds (SMSFs) holding illiquid assets such as property or shares.  

 Current Tax Treatment vs. Proposed Changes 

Under the existing framework, superannuation earnings in the accumulation phase are taxed at a concessional rate of 15%. Earnings in the retirement phase are generally tax-free for individuals aged 60 and over.  

 The proposed Division 296 tax introduces a significant shift by imposing an additional 15% tax on earnings related to balances exceeding $3 million, regardless of whether these earnings are realised. This change aims to reduce tax concessions for high-balance accounts and promote equity within the superannuation system.  

 Implementation Timeline and Legislative Status 

The Division 296 tax is scheduled to take effect from 1 July 2025. Valuations for affected superannuation balances will be conducted from 30 June 2026, with assessments issued in late 2027.  

While the legislation has been introduced to Parliament, it has not yet been enacted. The government anticipates support from the Greens, and at this stage, it is unclear as to whether the final legislation will retain its current form or be changed.  

 Who Will Be Affected? 

Approximately 80,000 Australians currently have superannuation balances exceeding $3 million, representing about 0.5% of all superannuation accounts. However, due to the lack of indexation on the $3 million threshold, the number of affected individuals is expected to rise over time, potentially impacting up to 500,000 Australians.  

The tax will apply to all superannuation accounts, including SMSFs and industry funds. Individuals with balances approaching the $3 million mark should monitor their accounts closely and seek professional advice to understand the potential implications. 

 Insights from Thorntons’ Superannuation Specialist – Lina Spadanuda 

Lina Spadanuda, a superannuation specialist at Thorntons, provided the following insights: 

“The big thing that everyone’s talking about is the proposed 296… they plan on taxing any earnings or unrealised gains or growth above the $3 million, and that will be taxed an additional 15%.” 

 Lina emphasised the importance of understanding how unrealised gains are calculated: 

“People seem to be getting confused… it is calculated based on the difference between your balance at 30 June and 1 July. The % of growth that is over $3 million is then taxed at an additional 15%. ” 

 Regarding potential strategies, Lina advised caution: “Superannuation funds still offer attractive tax savings… you’re only paying 15% tax in it, whereas if you go to a company, you’re paying 30%.” 

 She also highlighted the need for professional advice: “Seeking advice from an suitably qualified advisor is in everyone’s best interests… to determine whether your assets  should be retained in your Super Fund or look at an alternative.” 

 Checklist: Assessing the Impact on Your Superannuation 

To determine whether the proposed Division 296 tax may affect you, consider the following: 

1. Superannuation Balance: Is your total superannuation balance approaching or exceeding $3 million? 

1. Asset Composition: Does your superannuation fund include illiquid assets that may have significant unrealised gains?  

1. Fund Type: Do you manage a self-managed superannuation fund (SMSF) or hold multiple superannuation accounts? 

1. Estate Planning: Have you considered how the tax on unrealised gains may affect your estate planning, particularly if you have reversionary pensions? 

1. Professional Advice: Have you consulted with your financial advisor and tax accountant to understand the potential implications and explore strategic options? 

 Final Recommendations 

Given the complexity and potential impact of the proposed Division 296 tax, it is crucial for individuals with high superannuation balances to seek professional advice. Engaging with your financial advisor and tax accountant will help you understand the implications for your specific circumstances and develop appropriate strategies to manage any potential tax liabilities.  

 Thorntons is committed to supporting our clients through these changes. If you have concerns about how the proposed tax may affect your superannuation, please contact our office to arrange a consultation with one of our specialists.