Starting from 1 July 2025, the Australian Government will implement a new tax measure under Division 296 of the Income Tax Assessment Act 1997, targeting individuals with superannuation balances exceeding $3 million.

Key Points of the Division 296 Tax:

• Additional Tax Rate: An extra 15% tax will apply to the earnings associated with the portion of a superannuation balance that exceeds $3 million. This is in addition to the existing 15% tax on super earnings, effectively bringing the total tax rate to 30% for earnings on the excess amount.

• Calculation Method: The tax is calculated based on the proportion of earnings attributable to the balance over $3 million. For example, if an individual has a super balance of $4 million, 25% of their earnings (i.e., the proportion over $3 million) would be subject to the additional 15% tax.

• Inclusion of Unrealised Gains: Both realised and unrealised gains are included in the earnings calculation. This means that increases in asset values, even if not sold, will be considered for tax purposes.

• Non-Indexed Threshold: The $3 million threshold is not indexed to inflation, potentially affecting more individuals over time as super balances grow.

• Payment Mechanism: The tax liability is assessed at the individual level, not the fund level. However, individuals can apply for a release authority to have funds withdrawn from their superannuation to pay the tax.

Implications:

• Affected Population: Approximately 80,000 Australians are currently expected to be impacted by this change.

• Strategic Considerations: Individuals with high super balances may need to reassess their investment strategies, considering the tax implications of unrealised gains and the non-indexed threshold.

This measure aims to improve the equity and sustainability of the superannuation system by reducing tax concessions for individuals with substantial super balances.

If you require further information or personalised advice, consulting with a financial advisor or contact the team here at HKS Russell.

t: + 617 3177 4120
e: advisors@hksrussell.com

Posted on May 30, 2025 by Charisse Russell - Articles