Many readers will have heard about the proposed changes to superannuation taxation that the government plans to introduce.
As of 1 July 2025, the Australian government plans to implement Division 296, introducing a significant change to superannuation taxation for individuals with total superannuation balances exceeding $3 million. This measure aims to reduce existing tax concessions for high-balance accounts and promote what the government considers to be greater equity within the superannuation system.
Key Features of Division 296:
- Additional 15% Tax: Individuals with superannuation balances over $3 million will incur an extra 15% tax on earnings associated with the portion exceeding this threshold. This is in addition to the existing 15% tax on earnings effectively doubling the tax rate on those earnings for those affected to 30%.
- Inclusion of Unrealised Gains: The tax applies to both realised and unrealised gains, meaning individuals may be taxed on increases in asset values even if those assets haven’t been sold For example if the value of your family farm held within your self- managed superannuation funds increases from one financial year to the next- you will be taxed on that gain regardless of whether or not you actually sell the farm.
- Calculation Method: Earnings are determined by the change in the total superannuation balance over the financial year, adjusted for a member’s contributions and withdrawals during that period. The proportion of earnings attributable to the balance over $3 million is then taxed at the additional 15% rate.
- Defined Benefit Schemes: The government intends to ensure that members of defined benefit schemes receive broadly commensurate treatment under Division 296, though specific measures are still under consideration.
Implications and Reactions:
The proposed tax has sparked debate. Proponents argue it enhances fairness by reducing tax concessions for the wealthiest superannuation holders. Critics, however, express concerns about taxing unrealised gains and the potential impact on investment strategies, particularly for self-managed super funds. At this stage the proposed legislation does not include indexation of the relevant superannuation balance threshold of $3 million to allow for inflation. As a result what may be a relatively small pool of initially affect parties will grow over time.
As the legislation awaits final approval, individuals with substantial superannuation balances should consult financial advisors to assess potential impacts and consider strategic adjustments. Even that is difficult at present given that the final details of the legislation remain to be confirmed.
If you would like to know contact your financial advisor or one of our lawyers on 08 8344 6422.