On 28 February 2023, the Government announced it would introduce a new tax on superannuation fund members with balances exceeding $3m. The changes were to apply from 1 July 2025.
In early October 2024, the bill came before the House of Representatives and was quickly passed by the combined Labor and Greens majority. After extensive lobbying from the sector, it did not pass in the Senate and subsequently lapsed. Following the recent Federal election, decisively won by Labor, the measure will most certainly be reintroduced to Parliament where its passage through both the House of Representatives and the Senate seems assured. Presumably, it will become effective from 1 July 2025.
CEO Andrew Sherlock believes the proposal to tax individuals on unrealised gains represents poor policy. He notes that even those not initially affected by the $3 million cap should remain cautious, as the threshold is not indexed—meaning more super fund members could be captured over time. He likens it to bracket creep, where politicians periodically announce “tax cuts” that merely adjust for inflation, rather than deliver meaningful reform.
What You Need to Know About Div 296
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Div 296 is a proposed tax—it is not yet law.
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It would apply an additional 15% tax on super earnings for individuals with super balances over $3 million.
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The tax would be calculated on the growth in your total superannuation balance, not just realised income.
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If legislated, the changes are proposed to take effect from 1 July 2025.
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This could impact retirement strategies, especially for those with large SMSFs or significant super accumulation.
⚠️ Before making any decisions or changes, speak with the Sherlock Wealth team. We’re here to help you understand the potential impact and plan with clarity and confidence.
Let’s look at the facts and assume it becomes law with a start date of 1 July 2025.
The $3m cap is a per member cap
The tax is based on an individual’s member balance. That means that no tax liability would arise if a couple had member balances of $2.9m each. It would apply if one member had $3.5m while the other had $2.3m. Clearly account equalisation strategies can be effective.
The tax does not apply until 30 June 2026
The calculation is based on the member’s year-end Total Super Balance (TSB). Accordingly, it is the member’s balance on 30 June 2026 (not 2025) that is relevant. An individual with more than $3m in superannuation at the start of, or during FY2025/26, who reduces their balance to $3m by 30 June 2026 will not be impacted by the tax.
The tax is proportionate
The total super balance includes all accumulation and pension member accounts the member has in all superannuation funds. However, only a proportion of their earnings for that year will attract the additional 15% Div 296 tax.
Calculating the Proportion
Let’s consider a simple example for John who has a 30 June 2026 balance of $5.5m. His balance on 30 June 2025 was $5m. He is subject to the new tax because his balance on 30 June 2026 was over $3m, not because his balance on 30 June 2025 was over $3m.
The proportion is calculated as:
Proportion of earnings = (TSB at year end – large balance threshold) ÷ TSB at year end
The proportion of John’s earnings in 2025/26 which is subject to the Division 296 tax is calculated as:
($5.5m – $3m) ÷ $5.5m = 45.45% (rounded to 2 decimal places)
Calculating the “Earnings”
“Earnings” are not calculated in the same way as the fund’s taxable investment income. Instead, “earnings” are calculated as the growth in the member’s Total Super Balance over the year, adjusted for withdrawals and contributions, as follows:
Earnings = Adjusted TSB at end of financial year – TSB at start of financial year
where:
Adjusted TSB at end of financial year = the member’s TSB at the end of the financial year plus Withdrawals less Contributions
Withdrawals = amounts withdrawn from superannuation during the financial year
Contributions = amounts added to superannuation (net of contributions tax if applicable) during the financial year
TSB at start of financial year = the member’s TSB just before the start of the financial year
If John hadn’t made any withdrawals or contributions in the 2025/2026 financial year his earnings would be
($5.5m + $0 – $0) – $5m = $500k
Calculating the Tax
A flat tax rate of 15% is applied to the proportion of earnings attributable to the member’s balance over $3m.
John’s tax liability would be
(15% of $500k) x 45.45% = $34,087.50
Collection of the Tax
Division 296 tax will be levied on the member personally, not their superannuation fund. The member will have 84 days to pay the assessment, directly using their personal assets or, alternatively, by taking the money from their superannuation fund to pay the tax using the mechanism already used for Div 293.
Conclusion
Super is the most tax effective structure we have and, for members with $3m or less in super it remains so. These members will not be affected now and may never be.
The cap is on a per member basis and the extra 15% tax is only applicable to “earnings” attributable to balances more than $3m.
There will be individuals who will achieve a better tax outcome by reducing their super balance to $3m but they don’t need to do it in haste. Many will be best served by making no change at all. There is plenty of time to consider what the legislation ultimately becomes before deciding. Any panic to meet the 30 June 2025 “deadline” is due to confusion regarding the significance of the definition of earnings.
Sherlock Wealth is here to assist with these decisions and will be in touch with anyone likely to be affected to determine the best course of action.
Start the conversation today: Contact the Sherlock Wealth team
