The Government have made good on their word at seeking to make the tax system fairer by imposing a new tax (yes the new Division 296 required a separate bill to be passed as it introduces a new tax)! The revised Division 296 is similar to but differs from the originally proposed Division 296, the legislation for which lapsed when the last Federal Election was called. 

 

So what is the current state of play? 

The legislation has now been passed which outlines a two-tiered system of additional tax on certain superannuation funds as follows: 

• Total superannuation balance (“TSB”) exceeding $3m (this is an individual’s total across all funds); and 

• TSB exceeding $10m (this is in total across all funds) 

These thresholds are indexed to CPI in increments of $150,000 and $500,000 respectively. 

 

In a change from the original legislation, whether a members balance exceeds the relevant threshold will be based on the higher of the value at the start and end of an income year. 

 

What are the tax rates and how do they apply? 

The applicable additional tax rates differ depending on whether the TSB is greater than $3m but less than $10m or more than $10m. The tax rates are as follows: 

• For TSB exceeding $3m but less than $10m the additional tax is 15% applied to the income of the fund (refer below); and 

• For TSB exceeding $10m the additional tax rate is 10%. 

 

What is taxed? 

Importantly the income of the fund that is to be taxed is the realised income of the fund.  This represents a significant departure from the originally drafted legislation which included unrealised gains. 

 

What can I exclude? 

In addition, in another important departure, the trustee of the superannuation fund has the ability to make an irrevocable election to exclude unrealised accrued gains up to 30 June 2026 from Division 296 tax.   

The election is only available during the 2026-2027 income year and includes all assets of the relevant member (ie assets cannot be cherry picked).  The impact of the election is to effectively create a separate tax cost base for Division 296 purposes (CGT on the disposal will be calculated in line with existing rules). Note that trustees whose members have less than $3m in superannuation might still need to consider making the election if they have large unrealised gains and the members expect to be over $3m in the future. 

 

Example Calculations 

John has a TSB of $12,000,000 and has Division 296 earnings of $500,000 

TSB	> $3 million	> $10 million
Proportion of balance	$9,000,000 (75%)	$2,000,000 (16.67%)
Division 296 earnings (proportion of $500,000)	$375,000	$83,350
Division 296 tax	$56,250	$8,335

The total Division 296 tax payable would be $64,585.  This is in addition to the standard earnings on a superannuation fund. 

 

What’s next? 

Trustees of superannuation funds should review existing balances to identify whether any assets have significant gains. 

Trustees and members may also wish to consider whether they wish to retain assets within the superannuation environment or reduce the balance below the relevant thresholds.   

 

Should you have any questions about how these changes will impact you please reach out to your Engagement Partner.