What is Division 296?
The Division 296 tax is part of Australia’s Better Targeted Superannuation Concessions (BTSC) policy. It introduces an extra tax applied directly on individuals who have total superannuation balances (TSB) exceeding $3 million, on the earnings portion of the balance above that threshold. (ato.gov.au)
Key Changes Effective from 2025–26
- Applies to earnings on the excess portion of super over $3 million starting 1 July 2025 for the 2025–26 financial year. (ato.gov.au)
- The base rate is 15% on earnings over $3 million, rising as high as 30% or 40% depending on how large the excess balance is (e.g. for balances over $10 million). (au.andersen.com)
- Liability is assessed via Notice of Assessment, due 84 days after issue. Individuals may elect to fund it from super or personal finances. If not paid, ATO can force release from super funds. ✔ (ato.gov.au)
Total Super Balance (TSB) Valuation Changes
- TSB calculation changes: foreign fund interests are excluded, the old “transfer balance account value” is replaced with annual valuation of interests. (softwaredevelopers.ato.gov.au)
- Super funds—particularly SMSFs—will get new reporting labels on Annual Return (SAR) forms so ATO can collect required data. (ato.gov.au)
What This Means in Practice
Example Scenario
Sarah has a $5 million TSB. Only the $2 million above the $3 million threshold will attract Division 296 tax. If her fund returns are 8% per annum, earnings on that $2 million (i.e. ~$160,000) are taxed at the relevant Division 296 rate (15–30–40% depending on how far over thresholds you are). Net earnings after tax could drop significantly.
Planning Opportunities
- Evaluate fund performance: funds with higher fees or volatile returns may be disproportionately affected.
- Consider deferring contributions or withdrawing funds (where legally permitted) before income year ends if over threshold.
- Utilize negative earnings (if any) to offset for future years under Division 296. (ato.gov.au)
Steps You Should Take Now
- Check your total super balance as of 30 June 2025 to know if you’ll cross the threshold.
- Communicate with your super fund to see if they are ready for the new reporting requirements.
- Gather records of earnings and valuations from all interests, including defined benefit or inactive interests—valuation might be tricky.
- If impacted, consult a financial/tax advisor to model your potential Division 296 exposure.
Bottom Line
For many, these changes won't hit until after 2025. But if you’re near or over $3 million in super, your net returns may soon shrink. Action now gives you a chance to structure things before the change bites. Being prepared means paying less surprise tax—and keeping more of your retirement savings.