Parliament has passed legislation establishing a new tax on superannuation earnings for individuals whose total super balance exceeds $3 million.
Key Points
- Start date deferred: The Division 296 tax will now commence from 1 July 2026, giving super funds and members more time to prepare.
- Applies to realised earnings only: Earnings are calculated based on the superannuation fund’s realised earnings that are attributed to members whose Total Super Balance (TSB) exceeds the threshold.
The fund’s earnings are determined using its taxable income, with adjustments made to exclude contributions and to include exempt current pension income as well as capital gains from segregated pension assets.
- Two-tier structure:
- Balances over $3 million – additional 15% tax on the portion of earnings attributable to the excess above $3 million (effective rate up to ~30%).
- Balances over $10 million – additional 25% tax on the portion above this level (effective rate up to ~40%).
- Indexed thresholds: The $3 million and $10 million thresholds will be indexed to inflation.
- CGT cost base reset: Small superannuation funds can elect to reset the value of their assets to market value as at 30 June 2026 for Division 296 purposes only. This election is made by the trustee and must be lodged by the due date of the fund’s 2026–27 income tax return. The reset applies on a whole-of-fund basis and is irrevocable. This represents a key decision point ahead of 30 June 2026. In practice, funds may need to maintain dual records, as the original cost base continues to apply for standard CGT purposes, while the reset value is used for Division 296 calculations. A critical aspect of making a CGT election under the proposed Division 296 regime is ensuring that accurate and supportable valuations are obtained, particularly for unlisted investments. Ensuring that updated valuations for these types of investments are obtained and the appropriate documentation is maintained will be key to managing compliance risk and ensuring the integrity of the election.
Implications for Clients
Super fund members with balances above $3 million should expect a higher tax on their super earnings from 2026-27 onwards.
Those with SMSFs or unlisted assets will need robust valuation and reporting systems, as total super balance and realised earnings will drive the calculation.
Planning Considerations
- Review projected Total Superannuation Balances for high-balance clients on 30 June 2026.
- Re-examine investment and asset realisation timing.
- Ensure accurate valuations and record-keeping for SMSF assets.
Example
If a member’s balance is $4.5 million and the fund earns $500,000 in 2026-27, one-third of the earnings is attributable to the excess over $3 million. An additional 15% tax on that portion equals $25,000, on top of the usual 15% fund tax.
If you need tailored advice, reach out to your Walker Wayland NSW adviser or contact us via our contact page.
