Understanding Division 296 and Your Superannuation
From 1 July 2025, the Better Targeted Superannuation Concessions (BTSC) change known as Division 296 Tax becomes effective. Individuals whose Total Superannuation Balance (TSB) exceeds A$3 million at the end of an income year will face a 15% tax on earnings attributed to the portion of the balance over that threshold. (ato.gov.au) This measure does not limit super balance growth but adjusts the tax concessions applicable to large super balances. (pwc.com.au)
Key Dates & Obligations
- Start date: Affects 2025-26 income year balances. (ato.gov.au)
- Reporting and assessment: Funds must report additional label information via SMSF Annual Returns or bulk data for non-SMSFs. Notices of Assessment (NOA) will be issued to individuals whose TSB exceeds the threshold. (ato.gov.au)
- Payment options: Individuals can pay directly or elect to release excess from super funds within 60 days of NOA. If payment isn't made, the ATO may issue a release authority to the fund. (ato.gov.au)
Planning Strategies & Example
If your current super balance is approaching or exceeding A$3 million, here are actionable strategies:
- Review super fund performance: Since even earnings over the threshold are taxed under Division 296, investments with lower volatility or growth may help reduce the taxable excess.
- Timing contributions: Contributions before 1 July 2025 won’t retroactively trigger Division 296, but only balances at end of financial years matter.
- Personal tax planning: Use other reliefs (e.g., negative super earnings carried forward) to offset earnings.
- Consider early retirement drawdowns if eligible: For instance, drawing from defined benefit interests may defer or reduce exposures. Detailed rules apply. (ato.gov.au)
Example Scenario
Jane, age 60, has a Total Super Balance of A$3.5 million at 30 June 2026. Her super fund earns A$100,000 in investment income in 2026-27. Under Division 296, the A$500,000 excess (3.5 m − 3 m) attracts 15% tax on the portion of earnings attributable to that A$500,000. So she pays tax on (A$100,000 × (500,000 ÷ 3,500,000)) = A$14,285 at 15%, equal to A$2,142.75.
Actionable Insights Now
- Check your current super balance and projections for 30 June 2025 and 2026.
- Consult with your super fund about reporting capacity and label changes. Actual values will matter.
- Evaluate whether contribution strategies or investment adjustments align with upcoming Division 296 liabilities.
With Division 296, large-balance superannuation is no longer tax-concession free for excess earnings. Planning early gives you options to manage those liabilities.