The new Division 296 (DIV296) tax is set to take effect from 1 July 2025.

The Bill passed the House of Representatives unopposed, the FAAA and SMSF association are trying to get the cap indexed, but we will need to rely on that coming through the Senate now. (There is the potential that Labor doesn’t have enough members in the Senate to get it through unchanged)

Here’s a breakdown of what it entails and how it will be calculated:

Overview of DIV296 Tax

• Applicability: This tax applies to individuals whose total superannuation balance (TSB) exceeds $3 million at the end of a financial year¹².
• Tax Rate: The tax rate is 15% on the proportion of superannuation earnings that exceed the $3 million threshold¹².

Calculation Method

1. Determine Earnings:
   • Earnings = (TSB at the end of the current financial year + Withdrawals - Net Contributions) - TSB at the end of the previous financial year².
2. Calculate Proportion of Earnings:
   • Proportion of Earnings = (TSB at the end of the current financial year - $3 million) / TSB at the end of the current financial year².
3. Calculate Tax Liability:
   • Tax Liability = 15% x Earnings x Proportion of Earnings².

Key Points

• Unrealised Gains: The tax includes unrealised capital gains, meaning it applies to the increase in value of assets even if they haven’t been sold².
• Non-Indexed Cap: The $3 million cap is not indexed, so it remains constant over time¹.
• Payment Options: Individuals can choose to pay this tax personally or from their superannuation account balances¹.

This new tax aims to ensure that superannuation benefits are more equitably distributed and to limit the tax advantages for very high superannuation balances.

If you are concerned about the DIV296 and how it will impact your retirement savings; please reach out so we can discuss alternative investment structures to compliment your retirement savings.

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