Table of Contents
Who Will Be Affected by Div 296?
Legislation enabling an extra 15% tax on earnings for super balances exceeding $3 million is currently before Parliament. Known as Div 296, this tax primarily targets individuals with high super balances, aiming to ensure a more equitable distribution of tax burdens across the population.
This measure will not impact most workers with average super balances, but it poses significant implications for those with large superannuation holdings, particularly those with property or other illiquid assets. Farmers and business operators who own their business premises within their self-managed superannuation funds (SMSFs) are at higher risk due to the nature of their investments and potential unrealised gains on assets that may push their super balances over the threshold.
How is the Div 296 Tax Calculated?
The calculation of Div 296 tax is a central concern for those with super balances above $3 million. The tax captures the growth in a member’s super balances over the financial year, factoring in contributions, withdrawals, and asset performance. The key elements include:
Unrealised Gains: Even if assets such as property or shares are not sold, any increase in their value during the year is considered an unrealised gain and is subject to tax. For those with high super balances, this could significantly impact their tax liability, as the tax applies to asset growth regardless of whether the gains are accessed.
Realised Gains: Profits from the sale of assets within the superannuation fund, such as property or shares, are classified as realised gains and are included in the taxable amount.
Offsetting Losses
For individuals with super balances that decrease during the financial year, Div 296 allows for an offset mechanism. Any negative growth in super balances can be carried forward to offset taxable amounts in future years. This feature ensures that the tax reflects overall performance over time, offering some relief to those whose superannuation assets experience periods of decline.
Implementation Timeline
The Div 296 tax will be assessed annually by the Australian Taxation Office (ATO). Members with super balances exceeding $3 million will have their balances tested for the first time on 30 June 2026. Following this initial assessment, the first notices of assessment for Div 296 tax are expected to be issued during the 2026-27 financial year.
Preparing for Div 296
If your super balances are likely to exceed the $3 million threshold, now is the time to prepare for the changes brought by Div 296. Proactive steps include:
- Reviewing Your Superannuation Balance: Regularly monitor your super balances to determine whether you are approaching the threshold. This awareness will allow you to make timely adjustments.
- Evaluating Investments: Assess the composition of your superannuation portfolio. Pay close attention to assets with potential for realised and unrealised gains that could impact your tax obligations.
- Planning Contributions and Withdrawals: Develop a strategy for managing contributions and withdrawals to maintain your super balances at optimal levels.
- Seeking Professional Advice: Engage with a financial adviser or tax specialist who understands the nuances of Div 296 and can tailor strategies to your unique circumstances.
Conclusion
The introduction of Div 296 marks a significant shift in how high super balances are taxed, aiming to create a fairer system while presenting new challenges for those with substantial superannuation assets. By understanding the legislation and its implications, individuals with high super balances can take proactive measures to manage their tax exposure effectively. Consulting a professional adviser and reviewing your superannuation strategy will be essential to navigating this changing landscape with confidence.
