With the recent federal election result, there’s renewed focus on the proposed Division 296 tax, a measure set to impact some self-managed super funds (SMSF). Here’s a breakdown of what it means and where things currently stand.

What Is Division 296 Tax?

Division 296 tax proposes an additional 15% tax on earnings that relate to the portion of an individual’s total superannuation balance exceeding $3 million. This threshold is applied per individual, not per super fund. Essentially, if you have superannuation in SMSFs, industry funds, and retail funds, the combined total of your individual balances will count towards the $3 million limit.

How Will the Tax Be Calculated?

Unlike existing super taxes that typically apply to realised gains (profits from assets you’ve sold), the Division 296 tax would also include unrealised gains, the increase in the value of your super assets, even if you haven’t sold them.

The ATO would calculate the tax based on:

• The change in your total super balance from the start to the end of the financial year
• Adjusted for net contributions and withdrawals made during the year
• Only the proportion of earnings attributed to the amount above $3 million would be taxed at the additional 15%

Is the Tax Law Yet?

Not yet. Division 296 is currently still a proposal. However, with the government holding a parliamentary majority, the legislation is expected to pass. The proposed start date was 1 July 2025, although there’s still industry debate about the finer details and potential delays.

Who Will Be Affected?

If your total super balance is under $3 million at the end of a financial year, you won’t be affected by this tax for that year even if your balance temporarily exceeded the threshold during the year.

Those with balances above $3 million will face the tax, but only on earnings attributable to the excess.

Key Considerations for SMSF Members

The $3 million cap is not indexed, so more members could be affected over time due to inflation or investment growth.

The inclusion of unrealised gains may significantly impact those with illiquid assets, such as property, which can rise in value without providing immediate cash flow.

Accurate asset valuations as at 30 June 2025 will be critical for correctly determining your position.

Next Steps

If your super balance is close to or over $3 million, it is important to start planning now.

We’ll continue to monitor the legislation closely and keep you informed as more details become available. If you have any questions or would like to discuss your situation, please don’t hesitate to contact us.