This FAQ is for general educational purposes only and does not constitute financial advice. It is provided and maintained by SMSF Alliance.
On 28 February 2023, the Government announced an integrity measure to reduce the tax benefits enjoyed by superannuation members with large balances which they have defined as over $3m. This cap is not to be indexed. The changes are intended to commence from 1 July 2025 to apply to member’s whose balances are over $3m at 30 June 2026 (not at 1 July 2025).
Currently super funds pay from 0% to 15% tax. This does not alter except that returns on balances over $3m are taxed an additional 15%.This additional tax is called Division 296 tax. It will be charged to the fund member personally, but can be paid by the super fund if the member chooses.
No, it failed to gain sufficient Senate report in the previous government to pass but, following the changed nature of the Parliament after the last election, the government has stated that they will use their superior numbers in the House of Representatives and the support of the Greens in the Senate, to pass the legislation. This FAQ assumes the legislation will mirror what was previously drafted however it may change. Any changes will be reflected in the FAQ.
The liability is calculated by the ATO based on the member data they receive from every super fund. The calculation uses changes in the member’s total super balance (the sum of all pension and accumulation accounts held by the member across all funds), including unrealised capital gains, rather than taxable income. This is because super funds, other than SMSFs do not have software capable of providing member specific taxable income information to the ATO. The government has decided that taxing unrealised gains on a permanent basis is preferable to requiring large super funds, including retail and industry funds, to upgrade the capability of their software. This aspect of the proposal is presently receiving heated criticism, even from some respected Labor sources.
There are three steps to calculating the tax.
As an example we will consider John, who has a 30 June 2026 balance of $5.5m. His balance on 30 June 2025 was $5m. He is subject to the new tax because his balance on 30 June 2026 was over $3m, not because his balance on 30 June 2025 was over $3m.
The proportion is calculated as:
Proportion of earnings = (TSB at end of financial year – large balance threshold) ÷ TSB at end of financial year
where:
TSB at end of financial year = the member’s TSB at the end of the current financial year
Large balance threshold = $3m
The result is then rounded to 2 decimal places (rounding up if the third decimal place is 5 or more).
Note that if the member does not have a total super balance of over $3m at the end of the year their proportion of earnings will be 0%.
The proportion of John’s earnings in 2025/26 which is subject to the Division 296 tax is calculated as:
($5.5m – $3m) ÷ $5.5m = 45.45% (rounded to 2 decimal places)
“Earnings” are not calculated in the same way as the fund’s taxable investment income. Instead, “earnings” are calculated as the growth in the member’s Total Super Balance over the year, adjusted for withdrawals and contributions, as follows:
Earnings = Adjusted TSB at end of financial year – TSB at start of financial year
where:
Adjusted TSB at end of financial year = the member’s TSB at the end of the financial year plus Withdrawals less Contributions
where:
Withdrawals = amounts withdrawn from superannuation during the financial year
Contributions = amounts added to superannuation (net of contributions tax if applicable) during the financial year
TSB at start of financial year = the member’s TSB just before the start of the financial year (or $3m whichever is the greater)
If John hadn’t made any withdrawals or contributions in the 2025/2026 financial year his earnings would be
($5.5m + $0 – $0) – $5m = $500k
A member’s “withdrawals” for a particular year will be the total of:
A member’s “contributions” for a particular financial year will be the total of:
A flat tax rate of 15 per cent is applied to the proportion of earnings attributable to the member’s balance over $3m.
John’s tax liability would be
(15% of $500k) x 45.45% = $34,087.50
Note that, if the member does not have a total super balance (not an adjusted total super balance) of over $3m at the end of the year their proportion of earnings will be 0% so no tax would be payable.
Scenario 1. Nick has a 30 June 2025 member balance of $4.5 million. He makes no contributions or withdrawals during the year. His 30 June 2026 balance is $4.8 million.
His Div 296 earnings are $300k. His taxable percentage is 37.50% so his Div 296 tax is $16,875.
Scenario 2. Same as 1. But, on 25 June 2026 Nick’s member account receives a total and permanent disablement insurance payout of $1 million. His 30 June balance is now $5.8 million but, after adjusting for his insurance payment, his earnings are still $300k. His taxable percentage has increased to 48.28% so his Div 296 tax is now $21,726.
Scenario 3. Same as 1. But, on 25 June 2026 Nick withdraws $1 million from his member account. His 30 June balance is now $3.8 million but, after adjusting for the withdrawal, his earnings are still $300k. His taxable percentage has decreased to 21.05% so his Div 296 tax is now $9,472.50.
Clearly, though contributions and withdrawals have not affected the Div 296 earnings, they have affected the level of tax paid on those earnings. This is in line with the government’s intention as the taxable percentage would reduce to 0% if sufficient had been withdrawn to bring Nick’s total super balance to $3 million at 30 June 2026.
Yes, here is a simple Div 296 calculator for your convenience.
Division 296 tax will be levied on the member personally, not their superannuation fund.
The member will have 84 days to pay the assessment, directly using their personal assets or, alternatively, by directing the ATO to take the money from their superannuation account. Where someone has multiple super accounts, they can choose the account from which the amount is withdrawn.
Not necessarily. If you are the only member, yes, but if there are other members then only if your member balance, when added to super balances you have in any other funds, is over $3m at 30 June 2026.
Usually, but there are three scenarios where members are exempt from Div 296 tax.
1. A member who dies before the last day of the financial year.
Though this seems perfectly reasonable it is also an indictment of the sloppy drafting of this legislation. Presumably this is unintended, but it means that a member who dies during a year is excluded, provided they do not die on 30th June. The government was advised of this fault, in various submissions during 2023 and 2024 but, in keeping with the notice they applied to these submissions, it was ignored. Presumably it will be rectified eventually.
2. A death benefit to a child
A member who at the end of the year is in receipt of a superannuation income stream paid to them because of the death of their parent (child pension).
3. Balances attributable to structured settlements.
If a member has a superannuation balance in excess of $3m which includes some portion, even minor, of a structured settlement payment (a personal injury compensation payment that was not counted towards their non-concessional contributions cap)
No, so it won’t increase with inflation each year. Lack of indexation will mean it will require the government to adjust it from time to time similar to what occurs with the income tax thresholds.
Under the standard total super balance rules, the proportionate involvement of a limited recourse borrowing can be included in the total super balance of some members but, for the purpose of Division 296 tax, limited recourse borrowings are ignored.
This is not yet clear. Certain defined benefit fund members are excluded. This is a small group, generally Judges in State based constitutionally protected funds. It would seem that others will be assessed using the family law valuation methodology. Some members may be able to defer their payments, many politicians are in this group, but we really lack detail. This FAQ will be updated as more detail comes to light.
No, but they can be carried forward where the adjusted total super balance at the end of the year (ie after factoring in withdrawals and net contributions) is less than $3m. This may occur where investment losses cause a member’s balance to fall below the threshold. In this case the adjusted total super balance at the end of the year is replaced with $3m for the purposes of calculating earnings. Note that any loss of value prior to the commencement of this measure is not counted as a loss though any recovery is counted as a gain.
No, if you were to avoid this tax by reducing your total super balance to $3m you would need to do so by 30 June 2026 as the determination is made at the end of the financial year, not the beginning.
Let’s consider James. He has $10m in super now. He doesn’t really have time to do a proper analysis as he doesn’t know what the final legislation will be but thinks he has to do something before 30 June 2025. He wants to know what the delay will cost him if he doesn’t take action now but if, in June 2026, he decides that he wants to reduce his super balance to $3m after all.
Let’s assume his account has increased in value by $1m during the 2025/2026 year so, to reduce it to $3m before 30 June 2026, he will need to withdraw $8m. He hasn’t made any contributions. What are his earnings?
Earnings = $3m + $8m – $10m = $1m
Does this mean his tax bill is $150k? No, because there is another part to the calculation.
Only a proportion of the Earnings is taxable.
Taxable proportion of earnings = (TSB at end of financial year – large balance threshold) ÷ TSB at end of financial year
= ($3m-$3m)/$3m = 0%.
So, delaying his decision for a year hasn’t cost James any extra tax at all. It has, however, allowed him to enjoy his super tax concessions for another year. There is time. There is no need to panic!
What if he decided to leave his super as is? He would pay the Div 296 tax as his proportion would not be 0%.
The proportion would be ($11m-$3m)/$11m = 72.73%. So, tax would be 72.73% of $1m at 15% = $109,095
Perhaps. If you are in receipt of a complying lifetime or complying life expectancy pension that you intend to commute under the 5-year amnesty or in an SMSF with existing legacy reserves you wish to allocate and/or remove, you might consider doing so before 30 June 2025. This is because, if you wait until the 2026 financial year, the amounts will possibly be treated as growth, thereby increasing your 30 June 2026 total super balance, even if they are withdrawn during the year. Only a small number of people will be in this situation. If you are one, then you should seek professional advice.
For members with a total super balance, across all funds, of no more than $3m the benefits of superannuation are unchanged. For those who are affected it is possible that withdrawing the balance in excess of $3m could be advantageous but this is by no means guaranteed. The intent is that earnings on amounts in excess of $3m will be taxed at an additional 15%. This generally means that a tax rate of 30% will be applicable on such earnings. Member’s aged 60, and over, are able to access fund proceeds without paying further tax, so their total tax rate is 30%. Other structures may result in a higher overall tax rate when looked at from a total tax position. In addition, liquidation of super fund assets now, will probably incur capital gains tax on realised gains. The short answer is, it depends! There are two additional, but significant, considerations.