The Australian Government has proposed a new super tax for individuals whose Total Superannuation Balance (TSB) is over $3 million. This tax is proposed to apply from 1 July 2025 (for the 2026 financial year) and be first assessed as at 30 June 2026. It would apply a 30% tax rate on the earnings attributable to 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 the Division 296 (Div 296) superannuation tax rules.
The tax would apply to an individual’s super balance (not the total balance in a self-managed super fund (SMSF)). The intention of the proposal is to address 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 explaining how the tax is calculated.
What is your Total Superannuation Balance (TSB) comprised of?
The TSB 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 at 30 June each year.
Note that, unlike other measures where the trigger is the previous year’s TSB, for this tax the trigger is your TSB at the end of the year being taxed.
How will this new super tax be calculated?
The new super tax (Division 296) would 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 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):
$5.5 million − $4.5 million = $1 million
Eric’s accountant must then calculate the percentage of the TSB above $3 million:
($5.5M − $3M) ÷ $5.5M = 45% (i.e. 45% of the TSB is in excess of $3M)
Thus 45% of the “Div 296 earnings” would be taxed at 15%:
15% of ($1M × 45%) = 15% of $450,000 = $67,500
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 into the next financial year.
Your accountant will need to do more detailed calculations if your superannuation has had pension withdrawals, concessional contributions, and/or non-concessional contributions.
Considerations and implications 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 may be required to pay tax on income you haven’t actually received.
Liquidity concerns
Paying tax on unrealised gains could also lead to liquidity issues for self-managed super funds (SMSFs). Funds may need to sell assets or take other measures to pay the tax, particularly where 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 refund for negative earnings
Where there are negative earnings during a financial year, the loss would be carried forward to be offset against future positive “earnings”. This is similar to how capital losses can be carried forward and offset against future capital gains.
No indexation of the $3M threshold
The fairness of the proposed reforms has been questioned because the $3M threshold is not indexed to inflation like other thresholds. While this may not affect those approaching retirement now, it could impact future generations. For example, assuming 3% inflation over 20 years, $3M would be equivalent to approximately $1.66M in today’s dollars.
Administrative burden and costs
The complexity of these changes may increase administration costs. Assets may need to be formally valued each year—straightforward for ASX-listed shares, but more complex for property, which may require an independent valuation.
What does this new super tax mean for you?
Most people will never have $3 million in super, so they may not need to worry about this new tax. However, if you already have $3 million in super (or might reach that amount in the future), you should consider the proposed rules. The impact of this tax needs to be reviewed on a case-by-case basis. For example, you may need to consider contributing less or withdrawing more from super (if eligible) to manage the potential tax implications.
That said, in many cases superannuation may continue to be an attractive and cost-effective vehicle for wealth accumulation and estate planning, even for balances above $3 million. Before making any investment decisions, we recommend discussing your objectives with a qualified financial adviser. They can consider your personal situation and help you understand strategies available and how they may affect your future.
How can you reduce your total super balance before 30 June 2026?
One way to reduce your total super balance before 30 June 2026 is to make a lump sum withdrawal after 1 July 2025 and before 30 June 2026. You will need to meet a condition of release during this time, such as reaching retirement age or ceasing work after age 60. By withdrawing a portion of your super as a lump sum, you may be able to bring your balance below the $3 million threshold so Div 296 tax would not apply. Always check with your accountant and ensure this aligns with your broader retirement strategy before taking action.
At ABA Advice Beyond Accounting, our SMSF accountants in Birtinya can assess your tax situation and advise you on an effective strategy for your circumstances. We also specialise in SMSF administration and can assist with maintaining accounting and member records, as well as preparing annual financial statements and fund paperwork. Contact us today to discuss how we can help you manage your SMSF.
Legislation status
This legislation is still pending approval. The new super tax has passed the House of Representatives, but has been held up in the Senate due to concerns about taxing unrealised gains. The Bill is expected to be reintroduced and may pass soon. The commencement date is not officially known.