Proposed Excess Member Balance Tax (Div 296)
On 28 February 2023, the Government announced it would reduce the superannuation tax concessions available to members whose total superannuation balance exceeds $3m by introducing a new tax. The changes were to apply from 1 July 2025. What was proposed was that a new tax of 15% was to be levied on the growth of that part of a member’s superannuation balance over $3m. This new tax (Division 296 tax) would be charged to the fund member personally, though they would be allowed to take money out of superannuation to pay the tax regardless of their age or preservation status.
After considerable objection from numerous quarters, the bill lapsed in the Senate. There were three primary reasons for this
- The tax was payable on unrealised gains. Under general taxation principles, tax is only levied once an asset is sold. This is not the case for this tax. It would be levied based on the change to a members adjusted total super balance meaning that there may be insufficient cash in the fund (or available to the member personally) to pay it unless an asset was sold. This could cause difficulties for funds with significant investments in property or startup enterprises (SMSFs are significant supporters of startups). Interestingly, there is no refund if the balance reduces in value, just a carried forward “credit’ to be offset against future increases.
- Though the measure was announced as an equity measure targeting members with $80m in super the cap is far lower than that at $3m.
- The $3m cap was not indexed.
In early October 2024, the bill came before the House of Representatives and was quickly passed by the combined Labor and Greens majority. After extensive lobbying from the sector, it did not pass in the Senate and subsequently lapsed but, following the 3rd May general election result, which was won decisively by Labor, the measure will most certainly be reintroduced to Parliament where its passage through both the House of Representatives and the Senate is assured. Presumably it will become effective from 1 July 2025. This information sheet assumes this will occur.
Important Considerations
The tax is based on the total balance an individual holds in any pension or accumulation accounts they hold in any super fund, not the combined balance of all members in the SMSF. That means that no tax liability would arise if each member of a 2-member fund had a member balance of $2.5m but would apply for one member if that member had $3.5m while the other had $1.5m. Clearly account equalisation strategies can be effective.
The calculation is based on the member’s year-end total super balance (not adjusted total super balance) so, as the first year of operation is the 2025/2026 year, it is the member’s total super balance on 30 June 2026 (not 2025) that is relevant. An individual with more than $3m in superannuation at the start of, or during 2025/26, who reduces their balance to $3m by 30 June 2026 will not be impacted by the tax. Action to equalise member balances might be considered before the end of this financial year, given contribution eligibility considerations. If they occur during the 2025/2026 year they will only be caught in the adjusted total super balance calculation for earnings purposes, if the member’s total super balance at 30 June 2026 is over $3m. This is because the member’s total super balance determines the proportion of earnings that are to be taxed. The members adjusted total super balance is used to calculate those earnings. If the member’s total super balance is no greater than $3m at the end of the year then, even though there is a calculated value of earnings using the adjusted total super balance is valid, the proportion to be taxed is 0%. Precipitate action can therefore be avoided.
You may be interested in the Div 296 changes we have suggested.
Calculating the New Tax
The calculation only applies if the member has a total super balance, more than $3m on 30 June at the end of the financial year for which the liability is being calculated. A calculator is available here.
The total super balance includes all accumulation and pension member accounts the member has in all superannuation funds
Let’s consider a simple example for 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.
Only a proportion of their earnings for that year will attract the additional 15% Div 296 tax.
Calculating the Proportion
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).
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)
Calculating the “Earnings”
“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 including
- any benefits paid from their superannuation during the year (eg lump sum withdrawals, pension payments) (this will include any benefits paid from any death benefit pensions being paid to the member),
- any amount transferred from their superannuation to their spouse’s superannuation during the year under a contribution splitting strategy,
- an amount transferred from their superannuation during the year under a family law superannuation split,
- any amounts released under a release authority, and
- any amount prescribed by regulations for this purpose (note, at this stage no regulations have been made).
Contributions = amounts added to superannuation (net of contributions tax if applicable) during the financial year including
- any contributions made to a superannuation fund for the member during the year less 15% tax on any concessional contributions,
- any amount transferred or rolled into their superannuation fund during the year under a contribution splitting strategy,
- any amount transferred or rolled into their superannuation fund during the year under a family law superannuation split,
- the starting value of any new death benefit pension commenced to be paid to the member during the year,
- the date of death value of any pension which has reverted to the member during the year,
- any insurance proceeds received during the year and allocated to the member’s account during the year where the policy provided cover for death, total and permanent disablement or terminal illness of the member (note the proceeds from any temporary disability insurance would not be included as “contributions”),
- amounts allocated from a reserve for the member during the year provided they are counted against the member’s concessional contributions cap (note, some reserve allocations are not assessed against an individual’s concessional contributions cap and won’t be included in “contributions” including:
- any amount that was allocated in a fair and reasonable manner to an account for every member of the fund, where the amount allocated for the financial year is less than 5% of the value of the member’s interest in the fund at the time, and
- any amount allocated to a member from a reserve due to the commutation of the member’s defined benefit pension (ie a complying lifetime/life expectancy pension, or a flexi pension), or the commutation of a defined benefit pension (ie a complying lifetime/life expectancy pension, or a flexi pension) that was in payment to the spouse of the member, on the death of that spouse),
- any amount transferred into an Australian superannuation fund from a foreign superannuation fund for the member during the year less 15% tax on any amount the member has elected to have taxed in the fund,
- any increases in the value of the member’s superannuation interest during the year as a result of:
- a payment for compensation for a loss suffered due to fraud or dishonesty, or
- a remediation payment (eg arrangements where a fund member is compensated for some sort of error or wrongdoing from a superannuation trustee or third party), and
- any amount prescribed by regulations for this purpose (note, at this stage no regulations have been made).
TSB at start of financial year = the member’s TSB just before the start of the financial year
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
Calculating the Tax
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.
Collection of the Tax
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 taking the money from their superannuation fund to pay the tax using the mechanism already used for Div 293.
Note
This information is current as of 22nd May 2025 and will be updated as more details come to hand.
Calculator
A calculator is available here.