A new tax, known as Division 296, commences from 1 July 2026. The following provides a high-level summary of the key features of this tax:
- Who it affects: It applies to individuals with a total super balance (TSB) of more than $3 million (subject to indexation). For the 2026-27 year, TSB will only be assessed at 30 June 2027. In future years, it will be the greater of the prior 30 June and the 30 June at the end of the year (e.g. for 2027-28 it will be the greater of the 30 June 2027 and 30 June 2028 values).
- Earnings: Earnings will be made up of a number of components, including taxable income (e.g. interest, dividends and net capital gains from the sale of assets less taxable contributions). Taxable income is reduced by any taxable contributions (e.g. super guarantee and personal deductible contributions). Income attributed to tax-free pensions that is ordinarily exempt from tax will be earnings for Division 296 tax purposes however will be reduced by expenses that would be tax deductible. For the purposes of this tax only, concessions will be available to limit the taxation of capital gains accrued up to 30 June 2026. The concessions are:
- Small funds (e.g. SMSFs) – have the opportunity to reset the cost base of assets held at 30 June 2026 to the market value of those assets at that date. The election must be applied to all assets of the fund, is a once off election, must be made by the due date for the fund’s 2026-27 income tax return and cannot be revoked.
- Large super funds – net capital gains realised in the first four years will be reduced by multiplying the net capital gain by a factor that is less than one. The proposed factors, as outlined in draft regulations are:
|
Year of CGT event
| Factor
|
2026-27
| 0.2
|
2027-28
| 0.4
|
2028-29
| 0.6
|
2029-30
| 0.8 |
For certain funds, such as some defined benefit funds, earnings will be based on a change in TSB with adjustments for contributions and withdrawals, rather than the approach covered above.
- Earnings that are taxed: Division 296 tax is calculated on earnings attributed to the proportion of the individual’s total superannuation balance (TSB) above $3 million at a rate of 15 per cent (tier 1) and a further 10 per cent on the proportion of the individual’s TSB above $10 million (tier 2). The formulas for determining these portions are as follows:
Tier 1 portion = TSB - $3 million*
TSB
Tier 2 portion = TSB - $10 million*
TSB
* Thresholds subject to indexation
TSB for the 2026-27 year is measured at 30 June 2027. For future years it is the greater of the 30 June of the prior financial year and the 30 June at the end of the relevant financial year (e.g. for 2027-28 it will be the greater of the 30 June 2027 and 30 June 2028 values).
- Super tax rates: Division 296 tax is a separate tax to the existing super fund tax rules. The existing rules continue to apply and Division 296 tax is an additional tax for those with high super balances. The super tax rates and thresholds going forward can be broadly summarised as follows:
| Income in TSB range | Tax category | Total | Effective tax rate - discount capital gains (after 1/3 discount) |
|---|
| Current rate# | Div 296 – tier 1 | Div 296 – tier 2 |
|---|
| Up to $3 million | 15% | | | 15% | 10% |
| $3 million to $10 million | 15% | 15% | | 30% | 20% |
| Above $10 million | 15% | 15% | 10% | 40% | 26.67% |
# This rate will be nil where the income relates to a tax-free income stream
- Threshold indexation: Both the $3 million and $10 million thresholds will now be indexed to inflation in increments of $150,000 and $500,000 (respectively).
- Payment of tax: The tax is a personal tax liability though can be paid via the release from their superannuation balance. The tax liability is usually payable within 84 days of the ATO’s assessment.
Please note that the information above provides a brief summary of what is a complex area of tax law.
