The Federal Government has now passed the Division 296 legislation, introducing an additional tax for individuals with total superannuation balances (TSB) above $3 million.
Since the proposal was first announced in February 2023, several important changes have been made to the original design. The key updates include:
1. Removal of tax on unrealised gains
Instead of taxing increases in asset values that haven’t been sold, the tax will now apply only to an individual’s relevant superannuation earnings. These earnings are calculated using a specific adjusted taxable income formula set out under Division 296.
2. A new two-tier tax structure
Division 296 now applies different rates depending on the size of a person’s super balance:
- Balances above $10 million: taxed at an additional 25% in total (the original 15% plus a further 10%)
- Balances between $3 million and $10 million: taxed at an additional 15%
3. Indexation of thresholds
The $3 million and $10 million thresholds will now be indexed over time
4. Optional CGT cost‑base reset
All super funds can choose to reset the cost base of their assets as at 30 June 2026 for Division 296 purposes. This reset must apply to the entire asset pool — individual assets cannot be selected.
5. How balances are measured
Division 296 uses the higher of a person’s opening or closing TSB for the year. For the first year (2026–27), there is an amnesty on opening balances at 30 June 2026, giving members additional time to restructure if needed.
6. Division 296 can apply to deceased members
The executors of individuals who have passed away, who had balances over $3m, may still be impacted by Division 296 if the balances remain in their funds for future financial years.
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While some of these changes, such as removing tax on unrealised gains and allowing a cost‑base reset, are welcome, the introduction of a higher tax rate for very large balances adds a new layer of complexity and affected members will need detailed modelling to understand the impact.
Another practical issue is how Division 296 applies when someone inherits their spouse’s superannuation and their balance suddenly exceeds the $3 million threshold. Overall, the final version of Division 296 is significantly more complex than the original announcement.
If you’re likely to be affected by Division 296, now is the time to act. Contact DFK Benjamin King Money for tailored advice, or join our upcoming information session to understand how these new laws may impact your super and what steps you should consider next.