Division 296 Superannuation Tax Update

Status:

Legislation passing the Government’s Division 296 tax, which would introduce an additional 15% tax on superannuation earnings for individuals with total super balances exceeding $3 million, has now been passed by both houses of Parliament and as such is expected to become law. Its important to remember this tax will only apply to individuals whom have superannuation assets (excluding other personal assets) in excess of $3m.

Key takeaways:

  • There will be no taxing of unrealised capital gains as originally proposed.

  • The $3m cap will be indexed with inflation.

  • A new threshold of $10m (which will also be indexed) will be introduced and earnings on super balances in excess of $10m will be taxed at 40%

  • The new proposed commencement date is 1 July 2026, a deferral of 12 months from originally planned. This means that the first time to measure a super funds balance against the $3m threshold is 30 June 2027 with the first payment date in the FY27/28 year.

  • D296 tax will be levied on the individual based on that individuals superannuation asset earnings. The tax can be paid from either individual or superannuation sources.

  • Self managed super funds of all sizes will have the option of ‘opting in’ to have capital gains accrued to 30 June 2026 disregarded for the purpose of D296 legislation. Its likely this opt-in will need to be completed as part of the SMSF’s 2026 taxation return.

  • For many it’s likely that retaining assets in super above the $3m threshold will continue to be the most appropriate course of action.

  • We are awaiting additional regulations which are yet to be released by the ATO with respect of nuanced rules pertaining to the legislation.

Professional guidance

We will continue to work with those impacted by the changes, noting that the commencement date has been deferred to 1 July 2026, to ensure current structures are still appropriate. Any decision to exit an asset from super to save the D296 tax needs to occur before 30 June 2027. Further, we will clarify the uncertainties that still exists as Treasury releases further details.

Important note

The information provided is general in nature and does not take into account individual objectives, financial situations, or needs. It is intended for informational purposes only and should not be relied upon as financial or professional advice. Individuals should seek tailored advice and consider relevant product disclosure documents before making any decisions.

Cristy Houghton