The Superannuation Division 296 Tax| Invigor8 Accountants

The Superannuation Division 296 Tax

20-Jul-2025

Concerned about the new superannuation tax changes? At Invigor8, we understand that navigating the complex world of super can feel overwhelming. The good news is that for most small business owners, the new Division 296 tax won't impact their retirement plans. Starting in July 2025, this additional 15% tax applies only to earnings on super balances exceeding $3 million, affecting just 0.5% of Australians. Whether you're approaching this threshold or simply want to optimise your retirement strategy, understanding how these calculations work is crucial for smart financial planning. With special considerations for defined benefit members and various payment options, now's the perfect time to review your super strategy with experts who can translate complex tax legislation into practical advice tailored to your situation.

The Australian Government is introducing reforms to ensure that superannuation tax concessions are more equitable and fiscally sustainable. Under the proposed legislation, from 1 July 2025, individuals with superannuation balances exceeding $3 million will be subject to a new tax—Division 296 tax.

🔍 What’s Changing?

Currently, super earnings are taxed at a concessional rate of up to 15%. The new measure introduces:

  • An additional 15% tax on earnings linked to the portion of the balance above $3 million.
  • This results in a total effective tax rate of 30% on those excess earnings.
  • Applies to individuals, not super funds.

📊 Who Is Affected?

  • Only about 0.5% of Australians (around 80,000 people) with high super balances.
  • Most Australians with balances below $3 million will not be impacted.

🧮 How Is the Tax Calculated?

  1. Based on the growth in your Total Superannuation Balance (TSB) from one financial year to the next.
  2. Adjusted for contributions and withdrawals to isolate actual earnings during the year, excluding interest earned. (Step1less Contribution plus withdrawals)
  3. A formula determines what percentage of your earnings relates to the balance over $3 million,
    Total super balance at end of year – Threshold limit ($3m as of now)
    Total Super balance at the end of the year
  4. And that portion is taxed at 15%. (i.e, Step 2 *Step 3*Step4)

🛑 Exemptions

Division 296 tax does not apply to:

  • Children receiving super income streams,
  • Individuals with structured settlement contributions (e.g., injury payouts),
  • Deceased individuals (before EOFY),
  • Earnings from non-complying super funds
  • Constitutionally protected fund members and certain judges appointed before 1 July 2025.

🔐 Defined Benefit Members

  • Special rules apply.
  • Tax on these benefits is deferred until a pension or lump sum is actually paid.
  • A Division 296 debt account is used to track deferred liabilities.

💸 Payment Options

Individuals can:

  • Pay from personal funds, or
  • Elect to release money from their super (even without a condition of release).
  • For defined benefit interests, the tax is deferred

They have 84 days from the ATO assessment to pay.

🌍 Temporary Residents

Those leaving Australia and receiving a Departing Australia Superannuation Payment (DASP) can claim a refund of any Division 296 tax paid.

📌 Examples

Example 1 – Super Balance Above $3 Million

Alex had a superannuation balance of $2.8 million on 30 June 2025, which increased to $4.5 million by 30 June 2026. During the year, Alex:

  • Received $27,500 in concessional contributions,
  • Made no withdrawals.

His Adjust TSB, 4,476,625 = 4,500,000- $23,375(27,500*85%, i.e, 15% tax paid Super Fund)
His basic earnings = 4,476,625 – 2,800,000= 1,676,625
% over $3M =(4.5M-3M)/4.5M=33.33%
Taxable earning =1,676,625*33.33%=$558,798
Division 296 tax = 15%*$307,340=$83,820

Example 2 – Carry Forward Negative Earnings

Jacob had $9 million on June 30, 2025, and $8 million on June 30, 2026. He makes $150,000 in withdrawals.

His adjusted TSB = $8.15M
His basic earnings = $8.15M - $9M = –$850,000
He pays no Division 296 tax in 2025–26, but he carries forward this negative amount.
In 2026–27, his balance increases to $8.65 million (after withdrawals). His earnings = $650,000
After applying the prior year’s –$850,000 loss:
650K – 850K = –$200,000

Again, no tax is payable. He carries forward another negative $200,000 into the next year

Example 3 – Defined Benefit Scheme

Sally, aged 62, has:

  • $1.8M in a pension interest
  • $2.0M in SMSF accumulation
  • $3.0M in APRA accumulation

TSB*: $6.8M

Earnings: $550,000
% over $3M = (6.8M – 3M)/6.8M = 55.88%
Taxable earnings = 55.88% × 550K = $307,340
Division 296 tax = 15% × $307,340 = $46,101

She can pay this tax by releasing funds from any of her super accounts.

*Abbreviation TSB  - Total Superannuation Balance

✅ Key Takeaway

This reform aims to preserve fairness in the superannuation system while maintaining incentives to save for retirement. High-balance holders will continue to benefit from concessions—but at a reduced level for balances above $3 million.

Let us know if you have questions about how this may impact you or your clients. Book a free consultation or contact us today to get started.

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