The federal election is now done and dusted with the Labor party retaining government. What does this mean for the $3 million super tax? The bill in relation to Division 296 (Div296) lapsed on 28th March 2025 when the federal election was called. It is now expected to be reintroduced to parliament, but it’s uncertain if it will take the same form or retain the July 1, 2025, start date. Along with the rest of the industry we are still relying on the exposure draft and subsequent announcements to provide the advice below. We have also built a basic Excel Calculator that you are welcome to download and use yourself to work out your potential Div296 liability:
The Albanese government supports the unchanged legislation but needs the Greens’ support in the senate. The Greens want the threshold lowered to $2 million with indexation, so it is likely some changes may occur as the parties continue to negotiate.
We will now discuss the impact of Div296 based on the legislation before it lapsed and will keep updating this article as changes occur.
Firstly, it is crucial to understand the tax benefits of having up to $3 million in super even with Div296. An individual can have up to $2 million (transfer balance cap 2025/26) in tax free retirement pensions with 15% tax applying to earnings on the remaining $1 million in accumulation phase. It would be very difficult to obtain that sort of tax concession outside of super.
Who will this measure apply to?
If the legislation starts on 1st July 2025, as originally intended, Individuals who have a total superannuation balance (TSB) of more than $3 million at 30th June 2026 will be impacted.
For those affected there is no immediate requirement to ensure plans are put in place by 30th June 2025 as actions can be taken during the year to reduce a member’s superannuation balance before the 30th June 2026 deadline. However, it is wise to obtain advice from your superannuation specialist about your specific circumstances.
A member of an SMSF may not receive their first Div296 assessment until after 15th May 2027 (2026 financial year lodgement deadline) as the ATO gather information based on the SMSF’s annual tax return to assess the Div296 tax.
How is a member’s total superannuation balance (TSB) calculated?
A member’s TSB is the total of all of a member’s super across all of their super funds which may include self-managed super funds (SMSFs), retail super funds, industry super funds, defined benefits funds i.e. public service funds.
Your TSB is measured at the end of the financial year at 30th June and includes the sum of accumulation and pension interests which includes:
- accumulation balances at 30th June
- retirement phase pensions including account-based pensions (ABP), Market Linked Pensions (MLP), term allocated pensions (TAP), lifetime pensions (LP) and flexi pensions (FP) – For TSB purposes the balance of your ABP or your MLP at 30th June is generally the balance reported in your member statement. However, special valuation rules apply to other types of pensions.
- transition to retirement pension (TRIS) balance at 30th June
- defined benefit interest in accumulation stage may not be the balance of your account but special valuation rules may apply
- outstanding balance of a limited recourse borrowing arrangement (LRBA) – only applies to new loans made after 1st July 2018 in relation to a related party loan or if a member has met a condition of release such as turning 65
Hint – Certain outstanding balances in relation to a LRBA are counted towards a member’s TSB. However, it is disregarded for the purposes of Div296 tax.
How does the Div296 tax work?
Additional tax of 15% will be applied to a portion of the member’s earnings. The tax is only levied when a member’s TSB exceeds $3mil at the end of a financial year at 30th June.
The process includes:
- Determine if a member’s TSB exceeds the $3mil threshold at 30th June
- Calculate the proportion of earnings subject to Div296 tax
- Calculate the adjusted TSB at 30th June
- Calculate what the earnings will be
- Apply the proportion of earnings at item 2 to the earnings calculated at item 4
- Calculate the Div296 tax on the earnings
- Negative earnings can be carried forward indefinitely and offset future gains
- Tax is levied on the member and not on their super fund
- The member has a choice to pay the tax personally or have it released by their super fund
How are superannuation earnings calculated?
Earnings are calculated based on the adjusted TSB at 30th June less the TSB at the start of the year. The adjusted TSB is the member’s TSB at 30th June add withdrawals less contributions.
The legislation is designed to tax the unrealised growth on earnings in the year they are incurred and not when an investment is sold. It is a personal member tax and not a tax at the fund level.
Earnings for Div296 purposes is the growth of a member’s TSB over the year. The legislation is targeting the growth in fund earnings and therefore the TSB at 30th June is adjusted by removing the effect of contributions and adding back withdrawals.
Unrealised gains on investments including property are swept up as being part of the growth in the earnings for the year. There is a mismatch as the tax is applied to the growth of an asset vs the realisation of an asset when cashflow is available to pay the tax. Furthermore, the Div296 tax does not include a CGT discount or recognition of a reduction in tax when a member is in pension phase. A fund with lumpy assets may not have sufficient cashflow to release member benefits to pay for their Div296 tax.
The member’s fund may incur a loss which is quarantined and offset against gains in the future. This means a member has possibly paid tax on a gain in a prior year but does not receive a tax refund in the year when a loss is incurred.
How is the adjusted TSB calculated?
This is the TSB at the end of the financial year add withdrawals less contributions.
Withdrawals include:
- member lump sum withdrawals and pension payments
- payments made in relation to a superannuation death benefit pension including lump sum commutations and pension payments
- an amount transferred out due to a contribution splitting arrangement
- an amount transferred out due to a family law super split arrangement
- an amount released under a release authority
Contributions include:
- any contributions, including concessional contributions (net of contributions tax) and non-concessional contributions
- an amount transferred in due to a contribution splitting arrangement
- an amount transferred in as a result of a family law super split arrangement
- the commencement value of a death benefit pension
- the value of a reversionary death pension in the year it reverts to the member
- insurance proceeds in relation to death, total and permanent disability or terminal illness of the member
- remediation payment for fraud or error i.e. from a licensed financial adviser
- certain amounts allocated from a reserve i.e. amounts counted against a member’s concessional contribution cap
- the amount a member has elected to have taxed in the fund when receiving a transfer from a foreign super fund
Examples of the calculation of earnings at 30th June 2026
Earnings are calculated based on the adjusted TSB at 30th June less the TSB at the start of the year. The adjusted TSB is the member’s TSB at 30th June add withdrawals less contributions.
Gail inherited Tim’s account-based pension when he died on 10 April 2026 as she was his reversionary pension beneficiary. Tim’s death benefit pension was valued at $560,000 at 10th April 2026. Gail’s TSB at 1st July 2025 was $3.1mil. Gail contributed non-concessionals of $120,000. Her TSB at 30th June 2026 was $3.8mil.
Gails adjusted TSB at 30th June 2026 $3.8mil + Nil – $120,000 – $560,000 = $3,120,000
Gail’s earnings are $3.12 mil -$3.1mil = $20,000
Bill had $120,000 released from his SMSF due to an excess non concessional notice. He contributed $30,000 as a member concessional contribution. Bill’s TSB at 1st July 2025 was $3.1mil and his TSB at 30th June was $3.3mil. Bernice received $15,000 as a transfer in from Bill splitting his concessional contributions from 2024/25 year and made a $20,000 non-concessional contribution. Her TSB at 1st July 2025 was $3mil and her TSB at 30th June 2026 was $3.1mil.
Bill’s adjusted TSB at 30th June 2026 is $3.3mil +$120,000 – $25,500 = $3,394,500
Bill’s earnings are $3,394,500 – $3.1mil = $294,500
Bernice’s adjusted TSB at 30th June 2026 is $3.1mil + Nil – $15,000 – $20,000 = $3,065,000
Bernice’s earnings are $3,065,000 – $3mil = $65,000
Modifying the rules to calculate earnings when the TSB at the 1st of July is < $3million
To ensure growth in earnings is only captured when it is above the TSB $3mil threshold special rules are applied to calculating earnings when the TSB at the beginning of the year dips below $3million.
Can I reduce my Total Super Balance before 30th June?
The simplest strategy to reduce a member’s TSB is to pay out member benefits as a lump sum payment. However, if you are under 60 and don’t meet a condition of release, you cannot withdraw money from your super fund. Consider capital gains, GST, and stamp duty if the fund sells investments to fund the member withdrawal. Consider the impact of investing the money received when super is withdrawn on the member’s personal tax situation i.e. a member on the top marginal tax rate of 45% will be subject to increased personal tax on the earnings from investing the post-withdrawal money.
Can I reduce my Div296 tax?
The Div296 tax is a separate tax to a member’s personal tax and a member cannot offset personal tax losses, use franking credits or tax deductions to reduce Div296 tax.
However, there are some strategies to reduce a member’s TSB which can result in reducing Div2936? tax or possibly keeping the TSB below the $3 million threshold:
- Evening up member balances between spouses using contribution splitting or withdrawal and recontribution strategy
- Withdrawing super before 30th June
- Allocating large contributions in July rather than June where your TSB is getting close to $3mil
Please seek advice in relation to the above strategies from your superannuation specialist or licensed financial planner to ensure it is right for your personal circumstances.
Who doesn’t have to pay Div296 tax?
The following members will not be subject to Div296 tax:
- Children in receipt of a death benefit pension
- An individual member who died before the 30th June – n.b. if the member died on the 30th June or after there is no exemption
- A member who has, at any time in the current or past years, received a structured settlement contribution – typically a member who has received a payment for a personal injury claim
$3mil Div296 threshold
It is crucial to understand the threshold applies per member, not per SMSF fund setup. The original bill did not index the $3 million threshold. Initially, 80,000 members are expected to face the new Div296 tax. With inflation and rising investment values, more people are likely to be affected over time.
Asset Valuations
The new Div296 provisions highlight the need for an SMSF to obtain reliable evidence of property valuations, valuations of private companies and unit trusts and other assets such as paintings, vintage cars and coin collections. The valuation of fund assets on 30 June can be the difference between being caught under Div296 or not. SMSF auditors are already gearing up to look for dodgy valuations and will likely place more scrutiny on the valuations trustees provide.
Key Takeaways
- Division 296 tax will be reintroduced into Parliament
- Div296 tax may differ to the lapsed bill but it is expected to be substantially unchanged
- The legislation is expected to be effective from 1st July 2025
- Div296 tax is intended to be levied on members of SMSFs with TSB in excess of $3mil at 30th June
- Only a proportion of a member’s excess earnings will be subject to Div296 tax
- Calculate the member’s adjusted TSB at 30th June which is the (TSB at 30th June- $3mil threshold) / TSB at 30th June
- Calculate the member’s earnings which is the adjusted TSB at 30th June (end of the year) less TSB at 1st July (beginning of the year)
- Div296 tax is calculated as .15 x proportion of earnings x earnings
- If you want to see more examples checkout out Div296 calculator blog
Divergent Numbers 