Further to previous announcements, Treasury has released draft legislation for the additional 15% tax on $3M+ balances. While the measure is called the “Better Targeted Superannuation Concessions”, the tax itself is destined to be known as the (uninspiring name of) “Div 296 tax”.

The draft legislation confirms the proposed operation of the new measure from 1 July 2025, including:

Application of the regime

The Div 296 regime will apply to any member who has a $3M total super balance at the start and/or end of the financial year. Despite industry requests, the $3M threshold has not been indexed.

Calculation of “earnings” (including unreleased gains)

The Div 296 tax will be calculated on a deemed earnings rate based on the movement of a member’s (modified) total super balance from the start of a financial year to the end of a financial year. Controversially, this will include unrealised gains.

Calculation of modified total super balance

The total super balance is calculated using the normal rules with the following modifications:

The total super balance is increased by (ie added back in) the following “withdrawals”:

• Benefit payments

• Spouse contributions split to the member’s spouse

• Family law splits to an ex-spouse

• Amounts taken out via release authorities

Total super balance is reduced by the following “contributions”:

• Contributions (including 85% of concessional contributions)

• Spouse contribution splits received

• Family law splits received

• Death benefit pensions received

• Death or permanent disability insurance proceeds received

• Foreign super fund transfers

• Remediation payments received as a result of fraud or dishonesty

In addition, limited recourse borrowing arrangement loan amounts, that would otherwise be included in the total super balance, will be excluded for Div 296 tax purposes.

Div 296 tax applied on a proportionate formula

The Div 296 tax of 15% is applied on the proportion of the members benefits that exceed $3M, in accordance following formula:

(Your total superannuation balance at the end of the year - $3M)/Your total superannuation balance at the end of the year.

The example below, shows how this formula works in practice.

Carry forward losses

Despite requests that losses be refunded, Treasury has stuck with a carry forward loss measure. There appears to be no measure to refund lost losses, for example, if the member dies with carry forward losses.

Exemptions to the regime

There are three proposed exemptions to the regime:

• Child pensions (funded from death benefits)

• Structured settlement payments

• A member’s balance in the year the member dies

Payment of the Div 296 tax

A Div 296 tax assessment must be paid within 84 days.

Members have the option of withdrawing some or all of the Div 296 tax from their super fund. The request must be made within 60 days of the assessment.

The “Claytons” deferral option?

During consolations, it was proposed that where Div 296 tax is assessed on unrealised gains that a deferral regime be put in place. The proposed legislation does not contain such a regime (other than for defined benefit schemes).

However, there is a reduced general interest charge interest rate on Div 296 tax assessments. The draft explanatory memorandum explains that this is because:

“The lower interest charge on unpaid Division 296 liabilities ensures that it allows relevant taxpayers to have a rate of interest charged that are broadly similar to market rates. This means that the rate of interest does not penalise taxpayers in the very rare circumstance that they do not have liquidity within or outside of superannuation to meet the tax liability. While this provides significant additional payment flexibility for individuals, it maintains the real value of the tax liability over time to ensure it is not abused by taxpayers to reduce the tax they are required to pay.”

The legislation does not seem to expressly allow a deferral measure (subject to interest) but the above comments suggest that the ATO could (should) administer the measure in that way (ie not enforce the tax debt and allow interest to accrue).

First use of the objective of super as a sword

The explanatory memorandum references back to the objective of superannuation as a justification for the measure, on the basis that:

“It will still provide concessions to save for retirement through superannuation whilst improving the equity of the superannuation system and its fiscal sustainability over time through limiting the level of taxpayer support available to a small number of individuals with large balances.”

As foreshadowed, the first act of the (yet enacted) objective of superannuation is as a sword to justify further changes to the superannuation system. It seems a long way from the objective’s original aim to be a shield from further government tinkering to the superannuation system.

Examples

The following are a couple of the examples included in the draft explanatory memorandum of now the new measure is proposed to work:

Example 1.2 (tax payable example)

Jess has a TSB of $4 million on 30 June 2025, and $4.5 million at 30 June 2026.

Jess receives concessional contributions to superannuation of $27,500 in the 2025-26 income year, including $9,500 in salary sacrifice contributions.

For Division 296 tax purposes, her total contributions for the year are $23,375 after correcting for the 15 per cent tax paid by her superannuation fund on these concessional contributions as under subsection 296-55(2) (85 per cent x $27,500).

Jess’s adjusted TSB at the end of the year is calculated to be $4,476,625 by deducting her total contributions of $23,375 from her end of year TSB of $4.5 million as under section 296-45.

Jess’s basic superannuation earnings for Division 296 tax in the 2025-26 income year are calculated as $476,625 by subtracting her previous TSB from her adjusted current TSB under subsection 296-40(2) ($4,476,625 - $4 million).

As Jess does not have unapplied transferrable negative superannuation earnings under paragraph 296-110(1)(b), under paragraph 296-40(1)(a) her superannuation earnings for the 2025-26 income year will be her $476,625 in basic superannuation earnings.

As her TSB at the end of the year is greater than the large superannuation balance threshold of $3 million and her superannuation earnings for 2025-26 are greater than nil, Jess will have taxable superannuation earnings for Division 296 tax purposes under subsection 296-35(1).

The percentage of Jess’s superannuation earnings above the $3 million threshold is calculated as 33.33 per cent, by calculating the percentage of her TSB at the end of the year over $3 million rounded to 2 decimal places under subsections 296-35(2)-(3) (($4.5 million - $3 million)/$4.5 million).

Jess’s taxable superannuation earnings for Division 296 tax are calculated as $158,859 by multiplying her superannuation earnings by the percentage of the earnings above the threshold under subsection 296-35(1) (33.33 per cent x $476,625).

This taxable superannuation earnings amount will be taxable at 15 per cent. Jess will have a Division 296 tax liability of $23,829 for the 2025-26 income year ($158,859 x 15 per cent).

Example 1.6 (carried forward loss example)

Jamal has a TSB on 30 June 2025 of $3.2 million. Jamal’s TSB is $2.8 million on 30 June 2026.

Jamal’s adjusted TSB at the end of the year for Division 296 tax purposes is calculated to be $2.8 million as under section 296-45, as there are no contributions or withdrawals to his fund in the 2025-26 income year.

As Jamal’s adjusted TSB at the end of the year is less than $3 million, for the basic superannuation earnings calculation the current adjusted TSB will be replaced with a $3 million value to ensure that the earnings calculation in subsection 296-40(2) only captures the negative earnings for the part of his TSB over $3 million. Jamal’s basic superannuation earnings for the 2025-26 income year for Division 296 tax are calculated as -$200,000 by subtracting his previous TSB from the threshold of $3 million under subsection 296-40(2) ($3.0 million - $3.2 million).

As Jamal does not have unapplied transferrable negative superannuation earnings under 296-110(b), under paragraph 296-40(1)(a) his superannuation earnings for the 2025-26 income year will be his basic superannuation earnings of -$200,000.

As his TSB at the end of the year is less than the large superannuation balance threshold of $3 million and his superannuation earnings for 2025-26 are less than nil, Jamal will not have taxable superannuation earnings for Division 296 tax purposes under subsection 296-35(1).

However, as Jamal’s TSB immediately before the start of the year is greater than $3m and he has superannuation earnings of less than nil, he will have a transferrable negative superannuation earning of $200,000 for the 2025-26 income year under section 296-105. Superannuation earnings for Division 296 tax purposes he may incur in future income years will be reduced by this amount.

To discuss this further or for more information please contact:

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au