Div 296 super tax and practical things to consider

Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some superannuation earnings for individuals if their total superannuation balance is over $3 million as at 30 June of the relevant income year. 

How does it work?

While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date*. If so:

• If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%.
  
  
• The tax is assessed to you personally and can be paid from your super or your own funds.
  
  
• Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals.
  
  
• Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased. 

It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year.

If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year.

Examples

Sam’s account

• 30 June super balance: $4 million.
• Annual growth: $120,000.
• Portion above $3m: ($4m–$3m)/$4m = 25%
• Taxable earnings: $120,000 x 25% = $30,000
• Extra tax: $30,000 c 15% = $4,500
  
  

Lisa’s inheritance

• Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension.
• Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability.

What can you do?

1. Review your super fund liquidity and cashflow planning for future tax payments
2. Ensure your asset valuations are up to date
3. Estimate your combined super balances and plan for any large transactions
4. Document asset values, especially for SMSF members
5. Seek tailored professional advice before making any changes

As the legislative landscape continues to evolve and further guidance or amendments may be made, it remains essential to stay informed and proactively assess potential implications for superannuation strategies during this period of transition.

WLM can help