What Are Better Targeted Super Concessions?
From 1 July 2025, the Australian Government’s Better Targeted Superannuation Concessions policy will introduce Division 296 tax, applying a 15% tax on super earnings attributable to portions of a member’s Total Super Balance (TSB) that exceed AUD 3 million. (ato.gov.au)
This new tax is in addition to the accumulation phase tax that super funds already pay, resulting in a combined headline rate on earnings above $3 million of around 30% for many funds. (ato.gov.au)
Who’s Affected?
- Individuals whose TSB exceeds $3 million at the end of a financial year. (ato.gov.au)
- Members of Any superannuation fund type—SMSFs, industry, retail, or defined benefit funds. The rule is based on accumulation earnings and applies regardless of fund type. (ato.gov.au)
Actionable Planning Strategies
To reduce or defer exposure to Division 296 tax, consider:
- Reviewing and managing the mix of investments: Excess earnings could be reduced if more of the portfolio is moved to lower-earning or non-accumulated assets (e.g. assets with lower yield). Use of defined benefit interests may defer tax until benefits are paid out. (ato.gov.au)
- Carrying forward negative earnings: If in a given year earnings are less than zero (i.e. a loss situation), unused negative super earnings can reduce future years' Division 296 tax. (ato.gov.au)
- Electing early withdrawal from super to cover Division 296 liabilities, where legally permitted, to avoid default release authorisation — especially in SMSFs. (ato.gov.au)
- Structuring contributions timing: Since TSB is assessed at financial year end, delaying or accelerating certain contributions or benefit payments may help avoid pushing the balance over the threshold. Seek assistance from advisers.
Example Scenario
Sarah has a TSB of $3.5 million at the end of the 2025-26 year. Her super fund's average earnings rate is 4%. Without any losses or adjustments, she will be taxed 15% on earnings attributable to the $500,000 above the $3 million threshold—and still pay regular fund tax on all earnings. If Sarah had a previous year of negative earnings of $100,000, she could reduce her taxable income under Division 296 by applying that loss.
Important Compliance & Reporting Notes
- Funds, including SMSFs, will need to report specific labels in annual returns: two new labels are being added to the 2026 SMSF annual return for Division 296 tax reporting. (ato.gov.au)
- A Notice of Assessment (NOA) will be issued to affected individuals—due 84 days after issue. Individuals may pay directly or elect to release funds from super. (ato.gov.au)
- Any unpaid Division 296 tax can be collected by the ATO via release authority if not addressed. Deferred periods apply for defined benefit interests. (ato.gov.au)
Practical Steps Today
- Check your current Total Super Balance—if approaching $3 million, consider modelling future contributions and earnings.
- Review investment strategy with your fund or adviser—balance between high-yield and stable income assets.
- Keep detailed records of earnings and losses—especially tax-exempt or negative returns.
- Plan for liquidity so that any required tax liability can be met without forced asset sales or cash crunch.
- Regularly consult updates from the ATO—draft legislation, guidance, and fund reporting requirements can evolve.
By preparing in advance, high-balance super recipients can avoid unpleasant surprises when Division 296 takes effect.