Treasurer Jim Chalmers has announced several key adjustments to the Government’s proposed Division 296 tax, following extensive consultation and feedback from the superannuation industry. These changes aim to deliver a fairer, more practical approach to taxing earnings on super balances above $3 million.
1. Start Date Deferred to 1 July 2026
The commencement date for Division 296 has been delayed by one year, now set to begin on 1 July 2026. The tax will first apply based on a member’s total super balance (TSB) at 30 June 2027.
This extension provides additional time for further consultation and to finalise legislative details.
2. New Progressive Tax Structure
A two-tier threshold system has been introduced, replacing the previously flat rate. The new progressive model applies tax rates to earnings as follows:
- Up to $3 million: 15%
- Between $3 million and $10 million: 30%
- Above $10 million: 40%
This structure aims to better reflect equity and proportionality across different balance levels.
3. Indexation of Thresholds
Both the $3 million and $10 million thresholds will be indexed over time. This ensures alignment with the Transfer Balance Cap and helps maintain fairness as inflation and retirement savings grow.
4. Only Realised Earnings to Be Taxed
In response to widespread concern, the tax will now apply only to realised earnings, not to unrealised capital gains.
This adjustment addresses the potential cash-flow challenges faced by SMSFs and funds holding illiquid assets such as property. Treasury will consult further on the method for calculating and attributing realised gains.
5. Parity for Defined Benefit Schemes
The Government has confirmed that defined benefit members will receive equivalent treatment under Division 296. Treasury will work with industry stakeholders to ensure parity in tax outcomes through a suitable calculation framework.
What This Means for You
These revisions represent a more balanced approach to superannuation taxation, particularly for members with large balances or complex asset holdings.
We will continue to monitor Treasury’s consultation process and provide updates as draft legislation is released.
If you’d like to discuss how these proposed changes might affect your superannuation strategy, please contact our team for personalised advice.
The information (including taxation) contained on this website is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. DLA Partners strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.