Superannuation tax changes: What you need to know
After sustained industry advocacy, the Federal Government has announced significant changes to the proposed Division 296 tax on superannuation balances over $3 million. In this article, BDO’s Shirley Schaefer and Tenille Ireland break down what’s changed, what remains uncertain, and what superannuation members should consider next.
The Federal Government has now responded to superannuation industry feedback, and despite previously saying there would be no changes to the proposed Division 296 tax (the additional tax on super balances over $3 million) they have now made the two major changes the industry was calling for.
The start date for the new measure has also been pushed back by twelve months to July 1, 2026, with the first measurement point now set for June 30, 2027.
Under the announced changes, Division 296 tax will no longer be levied on unearned income or unrealised capital gains, but on the realised or ‘earned’ income of the superannuation fund. While some of the details on how this will be calculated is yet to be disclosed, it’s expected that the realised earnings of each member will more closely resemble the taxable income of the superannuation fund.
The $3 million threshold will now be indexed in line with increases in the Consumer Price Index (CPI). Instead of adjusting annually, the threshold will only increase in $150,000 increments meaning it will only rise once cumulative CPI growth exceeds $150,000.
The additional tax applied will be 15 per cent on the income that is attributable or apportioned to the share of the member’s balance that exceeds $3 million.
Introducing a second threshold
The government has introduced a second superannuation balance threshold of $10 million. Those superannuation members whose balance exceeds $10 million will have an additional tax levied at 10 per cent of the realised earnings that apply to the income that is attributable to balances above $10 million.
This $10 million threshold will also be indexed, which will increase in $500,000 increments.
With these changes the proposed legislation needs to be redrafted, and the superannuation industry is expecting the draft legislation to be introduced into Parliament in early 2026 following a period of industry consultation.
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As always, the devil is in the detail and individual superannuation members should remain cautious before taking any action in response to this announcement from the Federal Government and should seek appropriate advice.
How will the new rules work?
The example below demonstrates how we expect the Division 296 tax will be imposed under the new approach.
Sarah is the sole member of her Self-Managed Superannuation Fund (SMSF)
- Sarah has a total superannuation balance at June 30, 2027, of $11,000,000
- The SMSF has realised (taxable) earnings for the 2027 financial year of $400,000.
Tax outcomes
- The SMSF will pay income tax (in its own right) on the taxable income at 15 per cent, an amount of $60,000
- Sarah will receive a personal tax assessment for $47,272, calculated as;
- 15 per cent tax on earnings attributable to the balance from $3,000,000 to $11,000,000, plus
- 10 per cent on earnings attributable to the balance from $10,000,000 to $11,000,000.
Calculation
$400,000 x $8,000,000/$11,000,000 x 15% = $43,636
PLUS
$400,000 x $1,000,000/$11,000,000 x 10% = $3,636
Total Division 296 tax: $47,272
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Sarah will have the option of paying this Division 296 tax assessment personally or electing to have the payment released from her superannuation fund, similar to the way Division 293 tax already operates.
What remains unclear?
There are several facets of the calculation of realised earnings that are yet to be clarified. This includes:
- Whether realised capital gains will be those gains that only accrue after the start date of the legislation on July 1, 2026, or whether they are the full realised capital gain from an assets acquisition date
- Whether realised capital gains will be subject to the normal capital gains discounting that applies where an asset is owned for more than 12 months, or whether it will be on a gross capital gains basis
- Whether the ‘realised earnings’ can be reduced by exempt current pension income (if the superannuation fund is supporting the payment of pensions for members).
It’s also anticipated that the process implemented by the Australian Taxation Office (ATO) will be less automated as well. The ATO will notify a superannuation fund that a member has a total superannuation balance in excess of $3 million and then the ATO will request that the superannuation fund provides additional information regarding the realised earnings of the superannuation fund that are attributable to the specific member.
This process is required as individuals may have balances with several superannuation funds and the ATO will need information from all superannuation funds before the additional Division 296 tax is imposed on the individual.
What should superannuation members do next?
Once the draft legislation has been introduced to Parliament and there is clarity around the calculations, individuals will be able to make decisions regarding whether to keep balances above $3 million or $10 million inside superannuation or whether balances should be reduced, by comparing the applicable tax outcomes of holding assets inside or outside of superannuation.
It’s important to note that a reduction of a member’s balance can only occur if the member has reached their preservation age and met a condition of release to be eligible to withdraw benefits from superannuation.
BDO’s perspective
Our experts believe these announcements are a good outcome. The Federal Government was always going to apply additional taxes to individuals with high superannuation balances – the new proposal aligns more closely with current income tax principles, resulting in fairer outcomes more broadly.
We are cautiously optimistic about the upcoming consultation period. Once we have the detail of how realised earnings will be calculated, those individuals impacted will be better placed to plan ahead and make informed decisions.
Planning ahead
BDO’s superannuation team are ready to support you through these changes. If you’d like personalised advice or have questions about your superannuation options, get in touch with us today. To keep up with the latest superannuation updates and insights from BDO, subscribe to our newsletter.
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