$3m Super Tax Changes - Recap

The Government has released further detail on the proposed Division 296 tax on super balances over $3M.  While the legislation is yet to pass Parliament, the latest information provides a clearer picture of how the rules are expected to operate once implemented. The summary below reflects the details currently available and may still change as the proposal progresses.

Timing

• The start date has been delayed to 1 July 2026 so asset values on 30 June 2026 will be important

• Your total super balance (TSB) on 30 June 2027 will be used for these calculations

• The fund’s realised earnings for FY2027 will be used for these calculations – this will include any realised capital gains

• Legislation is not expected until after Christmas, followed by a consultation period

Reminder of Key Changes from the Original Proposal

• Unrealised gains will no longer be taxed – only actual realised earnings from 1 July 2026 will be subject to the extra tax

• Thresholds:

  • $3M threshold which will be indexed

  • $10M threshold which will be indexed

• Tax rates:

  • 15% on earnings attributable to the portion of TSB above $3M and below $10M

  • Additional 10% (total 25%) on earnings attributable to balances above $10M

• Pensions and defined benefit interests will also be included

Administration by the ATO

• Super funds will calculate realised earnings for members exceeding the relevant thresholds and report this to the ATO, most likely when the annual Tax Return is lodged

• The ATO will then calculate each member’s additional Division 296 liability based on the proportion of their TSB above the relevant thresholds

• A Division 296 assessment will be issued to the member, and the member has the choice to pay the tax personally or request their super fund pays it on their behalf

• If they request their super fund pays the Division 296 tax, we expect that the member will need to apply to the ATO for this to happen

Examples

1. Sarah – TSB $3.5M

   • Realised earnings: $170,000

   • Proportion of TSB above $3 million: 14.29%

   • Division 296 tax: $3,643.95 ($170,000 × 14.29% x 15%)

2.         Jason – TSB $5 million

• Realised earnings: $350,000

• Proportion of TSB above $3 million: 40%

• Division 296 tax: $21,000 ($350,000 × 40% x 15%)

3.         Fiona – TSB $15 million 

• Realised earnings: $750,000

• Proportion above $3 million: 80%

• Proportion above $10 million: 33.33%

• Division 296 tax: $114,997.50 [($750,000 × 80% x 15%) + ($750,000 × 33.33% x 10%)]

Outstanding Questions / Considerations

• Pre 1 July 2026 gains: The treasurer has announced that earnings will only capture realised gains accrued from 1 July 2026

• Capital gains discounts: The Government notes that earnings will align with taxable income principles.

• Pension income adjustments: How realised earnings from pension components will be treated in calculating the extra tax is currently unclear

• TSB calculations for complex funds: Any changes to the calculation of the total super balance for members with defined benefits or limited recourse borrowing arrangements will be important to monitor

Bottom Line

The revised proposal is a much fairer design than the original proposal, particularly with the removal of taxation on unrealised gains.

We’ll continue monitoring developments and will provide a detailed guide once the legislative and administrative details are available.

In the meantime, if you have any questions regarding this new Division 296 tax or would like us to run some numbers on how it impacts you specifically, please contact your client manager.