The Australian Government has proposed a new super tax for individuals whose Total Superannuation Balance (TSB) is over $3 million. This tax is set to begin from 1 July 2025¹ and will apply a 30% tax rate on the earnings from the portion of superannuation balances above this threshold. Currently, earnings on superannuation in the accumulation phase are taxed at a concessional rate of 15%. This proposal is also referred to as Div 296 superannuation tax rules.
The intention of the proposal is to tackle concerns about the concessional tax benefits that wealthy individuals receive on large superannuation balances. On the surface this may seem simple. However, there are deeper considerations if you are likely to be impacted by the introduction of this new tax. We’ll address these aspects after discussing how this tax is calculated.
What is your Total Super Balance (TSB) comprised of?
The TSB value is essentially the total amount of super benefits that would be payable if you cashed out your super entitlements. When calculating the TSB or adjusted TSB for Division 296 purposes, any Limited Recourse Borrowing Arrangement (LRBA) amounts are excluded.
Your TSB is used to determine eligibility for several superannuation measures, such as the ability to carry forward unused concessional contribution caps and is calculated as of 30 June each year.
Note that, unlike other measures where the trigger is the previous year's TSB, for this tax, the trigger is at the end of the year that will be taxed.
How will this new super tax be calculated?
The new super tax or Division 296 will tax “Div 296 earnings” on the portion of your super balance over $3 million at an extra 15%. This is in addition to the standard 15% tax on earnings (income less expenses) within the accumulation phase and the zero tax on balances in the retirement phase.
Here is a simple example of how the tax is calculated for a fictional client, Eric.
This example excludes add-backs, adjustments and the other detailed calculations required to establish a member's TSB:
On 30 June 2026, Eric’s TSB is $5.5 million. Eric’s accountant notes he is over the $3 million cap; therefore Div 296 tax may apply.
Eric’s TSB was $ 4.5 million at 30 June 2025.
Eric’s accountant must calculate his Div 296 earnings for the 2026 Financial Year (FY):
End of FY TSB minus the greater of TSB at the start of the FY (or $3 million) which is:
$5.5 million - $4.5 million = $1 million
Eric’s accountant now must calculate the percentage that will be taxed at the Div 296 rate:
[$5.5M (TSB at end of FY) - $3M (large balance threshold)] ÷ $5.5M (TSB at end of FY) = 45% of TSB is in excess of $3M.
Thus 45% of the "Div 296 earnings" will be taxed at 15% :
15% of ($1M x 45%) = 15% of $450,000 = $67,000
As you can see, the tax only applies if there are Div 296 earnings.
◊ If Eric’s TSB had still been $4.5 million for FY26, no tax would be payable
◊ If Eric’s TSB had dropped below $4.5 million for FY26, no tax would be
payable and the difference between FY26 and FY25 would be carried
forward as a loss in the next financial year
Your accountant will need to do more detailed calculations if your superannuation has had pension withdrawals, concessional and non-concessional contributions.
Considerations and Implication of the Proposed New Super Tax Legislation
Taxing Unrealised Capital Gains:
The inclusion of unrealised gains in the calculation of taxable earnings would set a precedent in the tax system. By taxing unrealised gains, you would be required to pay tax on income that you haven’t actually received.
Liquidity Concerns:
Having to pay tax on unrealised gains could also lead to liquidity issues for self managed super funds (SMSF’s). Super funds may need to sell assets or take other measures to pay the tax, particularly as these assets grow in value but do not generate cash flow. This presents potential liquidity risks for SMSF trustees and could discourage holding long-term growth assets.
No ability to be refunded for negative earnings:
Where there are negative earnings during a financial year, this loss will be carried forward to be offset against future positive 'earnings'. It will see them treated in a very similar manner to capital losses on investments where prior-year losses (also known as carry-forward losses) can be offset against capital gains in future years
No indexation of the $3M threshold:
The fairness of the proposed reforms has been called into question. The $3M threshold is not indexed to inflation like other thresholds. While this will not affect the Baby Boomers approaching retirement now, it will have a big impact on future generations. The $3M threshold seems generous now, but if you assume 3% inflation for 20 years it would equate to $1.66M in today’s dollars. That balance will affect a lot more people in the future.
Administrative Burden & Costs:
The complexity of these changes will lead to greater administration costs. Assets will need to be formally valued each year, easy for shares which are listed on the ASX every day, not so easy for property because that will require an independent valuation.
What does this new super tax mean for you?
Most people will never have $3 million in their super fund, so they won’t need to worry about this new tax. However, if you already have $3 million in your super or might reach that amount in the future, you should consider the new rules. The impact of this tax needs to be reviewed on a case-by-case basis. For example, you might need to think about contributing less or withdrawing more from your super, if you are eligible, to manage the potential tax implications.
That said, in many cases, superannuation will continue to be an attractive and cost-effective vehicle for wealth accumulation and estate planning, even for balances in excess of $3 million. Before making any investment decisions, we recommend that you discuss your objectives with a qualified financial advisor. They can consider your personal situation and help you to understand the various strategies that you can employ and the impact of those strategies for your future.
At ABA Advice Beyond Accounting, our SMSF accountants can assess your tax situation and advise you on the most effective tax strategy for your circumstances. We also specialise in the administration of SMSFs and can assist you with maintaining accounting and members records along with preparing annual financial statements and fund paperwork. Contact us today to discuss how we can help you manage your SMSF.
¹ This legislation is still pending approval.
Important note
ABA. Advice Beyond Accounting are not financial advisors and cannot offer investment advice. ABA always recommends seeking investment advice from a licensed Financial Advisor and would be happy to recommend a Financial Advisor if you do not have one.