Proposed changes to superannuation taxes before Parliament

We’ve previously written about the government proposal to levy additional tax for those with $3M+ super balances, which had been awaiting parliamentary approval. With Labor winning a majority in the recent election, it is inevitable that Division 296 will be reintroduced and passed, and we provide a reminder about it below.

It is important to note the new tax isn’t due to start until 2025–26. With the finer details still to be decided, at this stage, it is sensible to adopt a wait-and-see approach.

The tax is based on the member’s year-end balance, so, as the first year of operation will be the 2025–2026 year, it is the member’s adjusted total super balance on 30 June 2026 (not 2025) that is most relevant.

An individual with more than $3 million in superannuation at the start of or during 2025–26 who reduces their balance to $3 million by 30 June 2026 will not be impacted by the tax.

What is the proposal?

The Australian Government is proposing a doubling of the tax rates on superannuation earnings for those with $3M+ super balances in the 2025–26 tax year, which will see rates reach up to 30%.

Under the earnings calculation, the ATO will be using an individual’s total super balance to calculate their earnings, which means it will include unrealised gains.

The new Division 296 tax will be levied at the individual and at 15% on a percentage of the individual’s super earnings equal to the percentage of their total super balance above $3m, with no indexation. The tax can be released from the super fund to facilitate payment.

As it stands, all superannuation earnings in the accumulation phase are taxed at a 15% concessional rate, and the government has confirmed that this rate will continue for those with balances under the threshold.

Practical Examples: How the Division 296 Tax May Apply

To help illustrate how the proposed Division 296 tax could affect individuals with super balances above $3 million, we’ve included a few hypothetical examples based on the calculation method outlined in the draft legislation.

Please note: These examples are based on the previous draft legislation put before Parliament. Details of the legislation may change once legislation is re-introduced and passed in Parliament, and any advice or modelling should be revisited accordingly.

Example 1: No Contributions or Withdrawals, Moderate Growth

• TSB (Total Super Balance) at 30 June 2026: $3,200,000
• TSB at 30 June 2025: $2,900,000
• Withdrawals: $0
• Contributions: $0

TSE (Taxable Superannuation Earnings): $3,200,000 + $0 – $0 – $2,900,000 = $300,000
Proportion of TSB above $3 million: ($3,200,000 – $3,000,000) ÷ $3,200,000 = 6.25%
Division 296 tax payable: 15% × $300,000 × 6.25% = $2,813

Example 2: High Balance with Concessional Contributions

• TSB at 30 June 2026: $4,500,000
• TSB at 30 June 2025: $4,000,000
• Concessional contributions: $30,000

Adjusted TSB after contribution tax (15%): $4,500,000 – $4,500 = $4,474,500
Basic superannuation earnings: $4,474,500 – $4,000,000 = $474,500
Proportion of TSB above $3 million: ($4,500,000 – $3,000,000) ÷ $4,500,000 = 33.33%
Division 296 tax payable: 15% × $474,500 × 33.33% = $23,723

Example 3: Large Balance Growth with Contributions and Withdrawals

• TSB at 30 June 2026: $5,000,000
• TSB at 30 June 2025: $4,000,000
• Withdrawals: $10,000
• Contributions: $8,500

TSE calculation: $5,000,000 + $10,000 – $8,500 – $4,000,000 = $1,001,500
Proportion of TSB above $3 million: ($5,000,000 – $3,000,000) ÷ $5,000,000 = 40%
Division 296 tax payable: 15% × $1,001,500 × 40% = $60,090

These examples demonstrate how varying factors—such as contributions, withdrawals, and overall growth—can influence your potential Division 296 tax liability. For tailored advice, we recommend speaking to a financial adviser who can model your personal superannuation scenario in line with the proposed rules.

What should I do if I am impacted?

If this impacts you, there are some strategies you can explore before and after implementation:

• Moving super to a spouse’s account. If your spouse’s balance is under the cap, you may be able to maximise it by moving super into your spouse’s account. This may be worth considering even prior to the introduction of Division 296.
• Investment via a trust structure. Setting up a trust structure to invest your super earnings where distributions are paid tax effectively to beneficiaries may be a suitable option.
• Retain funds in your company. For those with a private company, it may make sense to retain the funds in the company and draw fully franked dividends to leverage the 25% tax rate.
• Invest in a personal name. For those with a lower marginal tax rate, this can be an effective strategy to reduce tax obligations.
• Bring forward inheritances. You may choose to withdraw part of your super now and gift it to your children rather than waiting until after death; you can even do this as a gift to your children’s superannuation funds to ensure the money is maintained for their future. One potential pitfall to be aware of with this strategy is that your money might be caught up in any future family law disputes.

Seek advice

Apt Wealth Partners is a superannuation expert, helping you structure your super, navigate changes and weather storms. We stay across impending super and tax legislation changes – so you don’t have to. Our advisers began working on strategies for impacted clients well before the announcement was made, enabling them to act immediately and make the most of their money.

If you could use that level of support with your finances, talk to Apt Wealth Partners today on 1800 801 277 or info@aptwealth.com.au.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.