Division 296 Tax Update: Government Revises Proposal
Background
In June this year, we provided an overview of the proposed Division 296 tax — an additional 15% tax on members with superannuation balances exceeding $3 million.
Treasurer Jim Chalmers has since announced a significantly revised version of the policy, following industry feedback
It is important to note the following amendments are proposals only, as a new Bill has yet to be introduced to Parliament.
Key changes announced
The main criticisms to the previously lapsed Bill, were centred around no indexation of the $3 million cap, and issues around tax being applied on unrealised gains.
While the new indexation is considered a win, the Government has now proposed a second threshold of $10 million.
Key updates include:
- A two-tiered approach on total super balances, in addition to the standard 15% concessional tax rate:
1. Additional 15% tax on earnings from $3 million to $10 million (30% in total)
2. Additional 25% tax on earnings from $10 million (40% in total)
- Division 296 tax will apply to future realised earnings. The previous proposal considered “unrealised” earnings, meaning a potential tax bill, despite not selling an asset. The new method focuses on taxable earnings, with adjustments for contributions or pension payments.
- Indexation of thresholds – The $3 million and $10 million caps will be indexed (Consumer Price Index), ensuring fewer Australians are affected over the long term.
- Implementation delayed to July 2026 – At this stage, the intention is for change in the 2027 financial year. The Government is aiming to introduce the new Bill to Parliament in early 2026, and if legislated, allow time for super funds and members to prepare.
- Inclusion of defined benefit pensions – The government mentioned additional changes for defined benefit pensions to ensure consistent treatment across all super arrangements. This detail is yet to be confirmed.
Separate to Division 296, the Government also announced the Low-Income Super Tax Offset (LISTO), which is a Government super payment to offset the contributions tax for low income earners. The following changes have also been announced, effective 1 July 2027:
- Maximum LISTO payment increased from $500 to $810
- Income threshold increased from $37,000 to $45,000.
Next steps
The revised proposal is expected to gain greater parliamentary support, but legislation is not yet finalised. It will be important to review the final details, especially for members with significant property or business assets in super.
For advice tailored to your circumstances, or to discuss how these changes could affect your superannuation or retirement strategy, please contact your Prosperity adviser.