What Is Division 296 Tax?
- What it is: A proposed additional 15% tax on a portion of superannuation earnings, including unrealised capital gains, for individuals whose total superannuation balance (TSB) exceeds $3 million (this threshold is not indexed).
- When it applies: Aimed to start from 1 July 2025, though legislative progress remains uncertain, especially since the bill lapsed during the March 2025 election and may be reintroduced with changes.
- How it’s calculated:
- Adjusted TSB at year-end = TSB at 30 June plus withdrawals, minus contributions to isolate earnings (thus including unrealised gains).
- Basic Superannuation Earnings (BSE) = Adjusted TSB at year-end minus TSB at previous 30 June.
- Taxable Super Earnings (TSE) = BSE × (TSB above $3m ÷ TSB at year-end).
- Division 296 tax = TSE × 15%.
- Effectively, only the proportion of earnings that correspond to the balance above $3 million is taxed at an additional 15%, separate from the fund’s usual 15% tax, resulting potentially in up to 30% effective tax on that portion.
Example Calculations (Based on ASFA Fact Sheet)
Here are some illustrative scenarios that provide clarity on how the tax is calculated:
- Jill
- TSB at 30 June 2025: $3.0 million
- TSB at 30 June 2026: $3.1 million (earnings = $100,000)
- Portion above $3m: ($3.1m – $3m) ÷ $3.1m = 3.23%
- TSE: $100,000 × 3.23% = $3,230
- Division 296 tax: $3,230 × 15% = $485 (~0.49% of total earnings).
- John
- TSB at 30 June 2025: $3.2 million
- TSB at 30 June 2026: $3.4 million; with $25,000 contributions, adjusted TSB = $3.375 million
- Earnings (BSE): $3.375m – $3.2m = $175,000
- Portion above $3m: ($3.4m – $3m) ÷ $3.4m = 11.76%
- TSE: $175,000 × 11.76% ≈ $20,580
- Division 296 tax: $20,580 × 15% ≈ $3,087 (~1.76% of total earnings).
- Harry (Self-employed)
- TSB at 30 June 2025: $5 million
- TSB at 30 June 2026: $5.5 million; no contributions or withdrawals
- Earnings (BSE): $5.5m – $5m = $500,000
- Portion above $3m: ($5.5m – $3m) ÷ $5.5m ≈ 45.45%
- TSE: $500,000 × 45.45% ≈ $227,250
- Division 296 tax: $227,250 × 15% ≈ $34,088 (~6.8% of total earnings).
- Fred (Retired Farmer in SMSF)
- TSB at 30 June 2025: $3.8 million
- TSB at 30 June 2026: $4.1 million, but withdrawals of $190,000—adjusted TSB = $4.29 million
- Earnings (BSE): $4.29m – $3.8m = $490,000
- Portion above $3m: ($4.1m – $3m) ÷ $4.1m = 26.83%
- TSE: $490,000 × 26.83% ≈ $131,567
- Division 296 tax: $131,567 × 15% ≈ $19,735 (~4.0% of total earnings).
Summary Table
| Example | TSB Start → End | Adjusted TSB | BSE (Earnings) | Portion Over $3m | TSE | Division 296 Tax |
| Jill | $3.0m → $3.1m | N/A | $100,000 | 3.23% | $3,230 | $485 |
| John | $3.2m → $3.4m | $3.375m | $175,000 | 11.76% | $20,580 | $3,087 |
| Harry | $5.0m → $5.5m | N/A | $500,000 | 45.45% | $227,250 | $34,088 |
| Fred | $3.8m → $4.1m | $4.29m | $490,000 | 26.83% | $131,567 | $19,735 |
(Note: Adjusted TSB takes into account withdrawals and contributions.)
Important Notes & Context
- Legislative Status: As of August 2025, the bill has not passed and lapsed in March due to the federal election. It may be reintroduced, possibly with amendments.
And so…
If enacted, Division 296 would:
- Apply only to the portion of earnings tied to balances above $3 million.
- Include unrealised capital gains, so you’re taxed even without selling assets.
- Result in an effective tax rate of up to 30% on that portion (15% fund tax + 15% Division 296).
- Require careful calculation, especially in accounts with contributions, withdrawals, and illiquid investments.