Division 296 tax information.
The proposed Division 296 tax, scheduled to begin on 1 July 2025, introduces an extra 15% tax on superannuation earnings that relate to super balances exceeding $3 million.
While most people support a fair and sustainable superannuation system, this new tax has attracted criticism for several reasons.
Why is the Division 296 tax controversial?
Two of the most common concerns are:
- The tax applies to asset growth even if the asset hasn’t been sold
- The $3 million threshold is not indexed to inflation
Let’s explore these issues in more detail.
1. Taxing unrealised gains
The 15% tax will apply to super fund “earnings” on the portion of your super balance that exceeds $3 million. However, earnings in this context aren’t just realised profits — they’re calculated based on how much your super balance increases over the financial year.
That means the tax applies to “paper gains” — increases in asset values that haven’t actually been sold or converted to cash. This presents a number of problems:
Your super fund may have to pay tax on unrealised growth, even if you later sell the asset at a loss.
The fund (or you) might not have the liquidity to pay the tax without selling assets. This could force you to sell investments sooner than planned, simply to cover the tax bill.
2. The threshold is not indexed to inflation
Only earnings attributable to the portion of your balance above $3 million are subject to the extra 15% tax.
While $3 million may sound like a high threshold today, its value will diminish over time due to inflation. A younger worker entering the workforce now — and contributing consistently — could easily exceed this threshold in future decades, especially if the cap isn’t adjusted in line with inflation.
More information
Talk to us about what should you do
It’s important to note that Division 296 is still a proposal and has not yet been legislated. For this reason, it may be premature to make decisions, such as withdrawing money from super, based on this proposal alone.
If you’re concerned about how the Division 296 tax may affect your retirement savings, we’re here to help.
Give us a call to discuss the potential implications for your personal situation and explore strategies to help optimise your superannuation under current and proposed rules.
Based in Noosa, on the Sunshine Coast Queensland, we work with clients throughout Australia.