Tax Alert - Further guidance on new proposed changes to Division 296 from 1 July 2026
Further guidance on proposed changes to Division 296 from 1 July 2026
Earlier this week, we released a Tax Alert (click here) after the Government announced some significant changes to the proposed superannuation rules to increase the concessional tax rate from 15% to an effective 30% rate on earnings on total superannuation balances (TSB) over $3 million – known as Division 296.
These proposed superannuation rules were set to commence on 1 July 2025, but the Government has now announced significant changes that will delay the start date until 1 July 2026 and apply to the 2026-27 financial year onwards.
What are the significant changes?
The government announced six significant changes to the proposed Division 296 tax:
- The tax will only apply to future actual realised earnings, not unrealised gains as originally proposed.
- The $3 million threshold will be indexed to the consumer price index (CPI) linked with the transfer balance cap (TBC) and updated in $150,000 increments.
- A new second $10 million threshold will be introduced, with earnings above this level taxed at 40%. This will also be CPI-indexed but in $500,000 increments.
- The start date has been delayed to 1 July 2026, based on members’ total super balance (TSB) exceeding $3 million as at 30 June 2027.
- The first assessments period is expected to be the 2027-28 financial year.
- The tax will apply to defined benefit pensions, being a consistent treatment across super structures.
The two changes that are considered to be most welcomed by the accounting & superannuation industries, following more than a year of persistent consultation, include:
- Indexation - Both thresholds (ie. $3 million & $10 million) will be indexed to the CPI. The $3 million threshold will be indexed in increments of $150,000 and the higher $10 million threshold will be indexed in increments of $500,000.
- Realised earnings - Funds will need to calculate taxable/realised earnings and attribute this to fund members. Adjustments will be made for elements such as contributions and pension phase income. These calculations better align to existing tax concepts by not taxing unrealised gains.
How will the new two-tier tax rates be applied?
The new two-tier system of tax rates will operate in a cumulative method to the extent attributable TSBs exceed $3 million or $10 million.
| Earnings relating to proportion of TSB | Tax rate | Notes |
|---|---|---|
| $0 – 3 million | 15% | Standard 15% (TSB up to $3 million) |
| $3 – $10 million | 30% | Standard 15% plus 15% Div 296 (TSB $3 > $10 million) |
| $10 million + | 40% | Standard 15%, plus 15% Div 296 (TSB $3 > $10 million), plus 10% (TSB >$10 million) |
How will super earnings be calculated?
Superannuation funds will continue to report member balances to the ATO, and the ATO will calculate each member’s TSB.
After the ATO notifies the superannuation fund it has a member(s) with a TSB that is within scope of Division 296 (ie. $3 million or more), the fund will be required to calculate the realised earnings attributable to those members within scope and report this back to ATO.
We note that the final methodology for calculating the tax liability will not be known until the consultation process is completed in early 2026.
It is anticipated that the methodology to calculate super earnings will follow the steps released (last year) in the original guidance for the proposed Division 296 rules, and should be as follows:
A. The ATO calculates the proportion of the TSB exceeding the $3 million threshold:
Proportion of TSB = TSB (Current year) - $3 million
(Component A) TSB (Current year)
B. The ATO calculates the proportion of the TSB exceeding the $10 million threshold (if applicable):
Proportion of TSB = TSB (Current year) - $10 million
(Component B) TSB (Current year)
C. The ATO calculates the total Div 296 tax liability for all that member’s interests:
Tax Liability = 15% x Realised Earnings x Proportion of TSB (Component A)
Plus 10% x Realised Earnings x Proportion of TSB (Component B)
This (anticipated) approach results in an additional 15% tax on a proportion of realised earnings between $3 to 10 million, plus an additional 25% (being 15% + 10%) tax on a proportion of realised earnings over $10 million.
To be clear, these rates (ie. 15% + 10%) are in addition to the standard 15% superannuation tax rate on income.
How will Division 296 tax be calculated?
To help understand how the Division 296 tax will be calculated, let’s consider some examples.
Example 1: The member has a TSB of $5,000,000 as at 30 June 2027 and has calculated attributable realised earnings of $200,000:
| Member’s TSB at 30 June 2027 | $5,000,000.00 | A |
|---|---|---|
| Total realised earnings | $200,000.00 | B |
| Proportion above the $3m threshold | 40.00% | C = (A-$3m)/A |
| Taxable earnings | $80,000.00 | D = B x C |
| Proportion above the $10m threshold | 0.00% | E = (A-$10m)/A |
| Taxable earnings | $0.00 | F = B x E |
| Division 296 tax liability (FY2028) | $12,000.00 | G = (D x 15%) + (F x 10%) |
Example 2: The member has a TSB of $15,000,000 as at 30 June 2027 and has calculated attributable realised earnings of $930,000:
| Member's TSB at 30 June 2027 | $15,000,000.00 | A |
|---|---|---|
| Total realised earnings | $930,000.00 | B |
| Proportion above the $3m threshold | 80.00% | C = (A-$3m)/A |
| Taxable earnings | $744,000.00 | D = B x C |
| Proportion above the $10m threshold | 33.33% | E = (A-$10m)/A |
| Taxable earnings | $310,000.00 | F = B x E |
| Division 296 tax liability (FY2028) | $142,600.00 | G = (D x 15%) + (F x 10%) |
Where the ATO determines a Division 296 tax liability arises, they will issue a tax assessment notice and the member can pay it with funds from their superannuation account or with personal funds.
What happens next?
These changes are not yet law.
Some important questions have already been raised in relation to these announced changes, and these questions will require more clarification by the Government, including:
- How will the new changes apply to capital gains on long-held shares and property?
- Will capital gains accrued before Division 296 comes into effect on 1 July 2026 be subject to the announced higher rates (ie. 15% and/or $10%) when those CGT assets are sold in the future?
- How will the new changes impact the current CGT general discount available to superannuation funds on the sale of CGT assets, will the effective tax rate on capital gains go from 10% (currently) up to 20% (based on combined 30% rate) or even 27% (based on combined 40% rate)?
Once the government releases updated draft legislation to implement these changes ahead of the 1 July 2026 start date, we expect there will be continued consultation with, and advocacy by, the accounting & superannuation industries during this period.
Then any updated legislation must pass both Houses of Parliament.
The proposed new start date is 1 July 2026, with the first possible assessment only possible against member balances exceeding the $3 million threshold on 30 June 2027, and the first Division 296 tax assessments only beginning during the income year ending 30 June 2028.
We will continue to watch this space and provide regular updates as new information becomes available.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.
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