There is no doubt that you would have been reading about the proposed Division 296 tax for those that have a superannuation balance above $3 million as at 30 June 2025. We have had some direct conversations and emails with clients, however we wanted to send a note to provide some context and clarity as the media have been speculating and often incorrectly reporting what it is and how it works.
What is it?
If your individual superannuation member balance is above $3 million as at 30 June 2025, this will have an impact on the tax you pay for the financial year ending 30 June 2026. This is an important point for two reasons:
- We will have 12 months to analyse the impact for you personally and take action (assuming the legislation is passed and we have absolute clarity on the detail).
- Having a higher super balance as at 30 June 2025 is the preferred option as your super balance will be measured against this benchmark on 30 June 2026. Hence, making large withdrawals now is not a good idea.
How it works?
- The threshold is per individual. That is, $3 million per person or $6 million per couple. If one partner has $2million, then no impact, and the other has $4 million, there will be an impact for that person.
- There is an additional 15% tax payable on the earnings for the proportion of your super balance over $3 million.
- The highly contentious part of the legislation is taxing unrealised gains, noting that it is only gains that are generated from 1 July 2025, not from the original purchase price of an investment asset.
- Below is an example of an individual with $2 million in pension phase and $2 million in accumulation phase and are drawing their 5% minimum pension and are not making contributions and the fund had an investment return of 8%.
| Balances as at 1 July 2025 | |
| Accumulation Balance | 2,000,000 |
| Pension Balance | 2,000,000 |
| Total Balance as at 1 July 2025 | 4,000,000 |
| Contribution (net tax) | 0 |
| Lump sum withdrawal | 0 |
| Pension payments | 100,000 |
| Balances as at 1 July 2026 | |
| Accumulation Balance | 2,160,000 |
| Pension Balance | 2,060,000 |
| Total Balance as at 1 July 2026 | 4,220,000 |
| Calculated Earning | 320,000 |
| Calculate Taxable Portion | 28.91% |
| Tax payable | 13,877 |
Defined Benefit Super Fund Members
There is currently no definitive legislation on how this will impact individuals that are in receipt of a defined benefit superannuation income stream. However, we have developed a calculator to estimate the impact, based on our current understanding of the rules and will be able to use this tool to assess the potential impact for you at our next meeting.
What advice will Parker Financial provide?
- We are recommending that clients do nothing prior to 30 June 2025, based on the points raised above, most notably that it has not been legislated yet
- We will be preparing financial and taxation modelling for each client to provide you with guidance as to how this will impact you personally, as everyone is in a different situation after the legislation is passed as part of our regular reviews
- We will also provide options and alternatives that you can consider
- We will be engaging with your tax adviser as part of this process to aim for the best outcomes
Please note this has not been legislated (yet), and we have 12 months to take action (or decide not to take action) and will work through this with each person on an individual basis.
Should you wish to discuss, please feel free to call me.
