Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some superannuation earnings for individuals if their total superannuation balance (TSB) is over $3 million as at 30 June of the relevant income year.
This measure is not yet law and must still pass both Houses of Parliament. At the time of publication, the start date had not been confirmed, although the Government was originally hoping that the measure would apply from 1 July 2025, with the first tax bills to be sent out sometime after 30 June 2026.
As discussions on the Division 296 super tax continue, it is crucial for individuals to understand the potential impacts on their retirement strategies. The introduction of this tax could redefine how high-income earners interact with their superannuation funds. For instance, some individuals may choose to adjust their contribution levels to stay beneath the $3 million threshold, thereby avoiding additional tax liabilities. This could lead to a more conservative approach to retirement savings as individuals weigh the benefits of maximising super contributions against the risk of incurring additional taxes.
The proposed Division 296 super tax may also instigate changes in investment behaviour. Individuals may need to consider not only their current balance but also how their investments are structured. For example, those with significant amounts in high-growth assets might reconsider their allocations, opting for more stable, income-generating investments that could potentially mitigate tax impacts should their super balance exceed the threshold.
The implications of Division 296 super tax can be profound, especially for high-net-worth individuals. With the superannuation system being a cornerstone of retirement savings in Australia, understanding how this potential tax impacts your retirement planning is critical. For instance, consider the long-term effects on retirement strategies, as individuals may need to alter their contributions, withdrawals, or investment choices to mitigate the tax implications. Furthermore, those with significant super balances may need to reassess their investment strategies, potentially leading to shifts towards more tax-efficient vehicles or diversified portfolios.
When assessing how Division 296 will affect personal finances, it’s also essential to consider the timing of withdrawals and contributions. For example, individuals nearing retirement might want to withdraw funds earlier to avoid the tax implications, whereas younger investors could choose to contribute more to their super while keeping a close eye on their total balances.
Moreover, understanding the calculation of superannuation earnings is fundamental. Individuals must be clear about how their net super balance adjusts annually, including any contributions, withdrawals, and the impact of investment returns. This understanding is vital for making informed decisions around their superannuation management in the face of potential Division 296 liabilities.
It is also important to note the implications of this tax on estate planning. For example, individuals with large super balances may need to reassess their estate plans to ensure that their beneficiaries are not adversely affected by a potential Division 296 tax liability upon their passing. This could involve discussions around how to structure their estate and superannuation to minimise tax exposure for their heirs.
Additionally, the Division 296 super tax may have broader economic ramifications. As high-net-worth individuals potentially reduce their contributions to superannuation, there could be shifts in the larger investment landscape. Understanding these potential changes can help individuals and financial advisors navigate the evolving financial environment.
Example: Mark’s financial strategy
Mark, whose super balance is just over $3 million, is aware of the impending super tax. To mitigate potential liabilities, he consults with his accountant, deciding to withdraw a portion of his balance just before the end of the financial year. This strategic move allows him to remain below the taxable threshold, ensuring his retirement savings remain intact.
The legislation surrounding Division 296 is still evolving, and individuals should remain vigilant about updates. Engaging with retirement advisors who are up to date on these regulatory changes can provide valuable insights tailored to personal circumstances. For example, accountants may offer strategies such as transitioning to more tax-efficient superannuation funds or adjusting asset allocations to minimise exposure to the additional tax.
Case Study: Veronica’s approach
Veronica has a balance of $3.3 million in her super. Concerned about the implications of Division 296, she re-evaluates her investment strategy. By shifting her investments into a mix of low-growth options and taxable accounts, she aims to reduce her super balance growth and mitigate future tax liabilities.
How does the Division 296 Super Tax work?
Finally, staying informed and educated about the implications of Division 296 is paramount. Individuals can subscribe to our TSP newsletter to keep abreast of ongoing developments [just email us at ad***@****************om.au or send us a message via our contact us page here] . This knowledge will empower you to make proactive decisions regarding your superannuation, ensuring you are well-prepared for any changes to the tax landscape.
Understanding the tax implications on your earnings is crucial. For example, if you anticipate a significant increase in your super balance due to investment growth or windfalls, it may be prudent to take proactive measures such as making additional withdrawals to stay below the $3 million threshold. This foresight can prevent unexpected tax liabilities and preserve your retirement savings.
Tax assessments will vary based on individual circumstances. For instance, a retiree relying heavily on their superannuation for income may face different challenges compared to a younger individual with a longer investment horizon. It’s essential to analyse your unique situation, considering factors such as expected income, lifestyle requirements, and other sources of retirement income.
Additionally, individuals should be aware of the potential for retrospective changes. If legislation is passed, the Government may review past earnings and apply the tax retroactively. This uncertainty necessitates a proactive approach to retirement planning, ensuring that you are well-prepared for any possible legislation outcomes.
In addition to tax implications, Division 296 raises questions about the overall sustainability of the superannuation system. As more wealth accumulates in superannuation funds, the Government may seek additional measures to ensure equitable taxation across different socio-economic groups. Consequently, ongoing dialogue between policymakers and stakeholders in the superannuation sector is vital to address these challenges.
Additional Example: Julia’s strategy
Julia has a super balance of $3.5 million as of 30 June. To avoid additional tax, she withdraws $500,000 before the end of the financial year. This strategic move not only reduces her super balance but also ensures she does not incur the extra 15% tax on her earnings.
While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date.
If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%.
The tax is assessed to you personally and can be paid from your super or your own funds. Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals. Some exclusions apply: children on super pensions, structured settlements
(personal injury), and the deceased.
For further guidance on how Division 296 may affect your retirement planning, reach out to us for a comprehensive consultation tailored to your specific circumstances.
It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year. If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year.
Division 296 Case Examples
Sam’s account
30 June super balance: $4 million.
Annual growth: $120,000.
Portion above $3m: ($4m–$3m)/$4m = 25%
Taxable earnings: $120,000 × 25% = $30,000
Extra tax: $30,000 × 15% = $4,500
Chris withdraws
Chris withdraws $200,000 before 30 June so his TSB is below $3 million at year end. Chris will not pay Division 296 tax for that year.
Lisa’s inheritance
Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension. Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability.
What can you do?
As the implementation of Division 296 looms, it’s essential to take proactive steps in preparing for the potential changes. Here are several strategies to consider:
Understanding the broader implications of Division 296 is essential for effective retirement planning. Contact us today for a comprehensive review of your situation concerning Division 296 and to explore tailored strategies that align with your financial goals.
- Review your super fund liquidity and cashflow planning for future tax payments.
- Ensure your asset valuations are up to date
- Estimate your combined super balances and plan for any large transactions
- Document asset values, especially for SMSF members
- Seek tailored professional advice before making any changes
While we are waiting to see whether the legislation passes through Parliament and whether
any significant amendments or adjustments are made to the proposed measures, if you have
any questions or concerns around this in the meantime, reach out – we’re here to help.
Contact us for a professional consultation to discuss your personal situation regarding Division 296.
When not at work, Deidre enjoys spending time with her husband and two children, as well as indulging in audiobooks and coffee.
Areas of Expertise:
✅ Business structuring & compliance
✅ SMSF strategy & auditing
✅ Tax planning for individuals & businesses
📧 deidrem@tspaccountants.com.au
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