Extra tax on high superannuation balances – draft legislation – what you need to know and actions for SMSFs
The Federal Government has released revised draft legislation for the proposed Division 296 tax, proposing significant changes to the taxation of superannuation balances above $3 million. While the legislation is not yet final, we want to share our initial observations, outline key technical points, and emphasise the importance of timely planning and professional advice.
Our Position: Ongoing Review and Planning
- We are reviewing the draft legislation in detail and assessing its potential impact on our clients.
- We will continue to monitor developments as the legislation progresses and provide tailored advice as more details become available.
- No immediate action is required at this stage, but we encourage you to stay engaged and seek advice before making any changes.
Key Features of Division 296 Tax
Who Is Affected?
Applies to individuals with a total superannuation balance above $3 million, assessed at the individual level.
How Will the Tax Work?
A 15% tax applies to earnings on balances above $3 million, with a further 10% rate for balances above $10 million (this will take the tax rates to 30% and 40%). The calculation is based on realised earnings, not unrealised gains. Special rules apply for defined benefit interests and certain excluded funds.
Timing and Implementation:
Proposed to start from 1 July 2026, with the first assessment based on balances at 30 June 2027. As a reminder this is levied to the individual, not the fund, however you may apply for funds to be released from your superannuation balance to pay this.
Practical Considerations:
The definition of “earnings” for Division 296 purposes may differ from your fund’s taxable income. Negative earnings in a year cannot be refunded but can offset future years’ earnings. The draft introduces a new method for valuing defined benefit pensions, which may affect some strategies even for those below $3 million.
Technical Nuances and Actions for SMSFs
Capital Gains Relief – Opt-In Required
- SMSFs wishing to exclude capital gains accrued before 1 July 2026 from Division 296 tax calculations must actively opt in using an “approved form.”
- The opt-in must be completed on or before the due date for the fund’s 2026/27 tax return. Missing this deadline means the fund cannot access the relief.
- The opt-in applies to the entire fund, not individual members or assets. Once opted in, all pre-July 2026 assets are covered, and future members may benefit if those assets are sold while they are members.
- Even SMSFs with no members above $3 million at 30 June 2026 may find it worthwhile to opt in if members expect to exceed the threshold in future years and the fund has accrued large gains.
- This adjustment affects only the Division 296 tax calculation, not the fund’s regular tax obligations.
Splitting Division 296 Earnings Between Members
- Division 296 tax is assessed at the individual member level, but the fund must first calculate its total “earnings” and then allocate these between members.
- For SMSFs, the allocation method will be set out in regulations and is expected to rely on a special actuarial certificate, similar to those used for pension funds.
- Some accumulation-phase SMSFs may need an actuarial certificate for the first time. Treasury guidance indicates that all SMSFs must use the same allocation method, even if they hold specific asset pools for individual members.
Variation in Calculating Amount Above $3 Million
The draft legislation introduces a slightly different method for calculating the amount above $3 million, which may affect how earnings are attributed and taxed. The new draft bases the percentage on the higher of the member’s balance at the start and end of the year. Previously it only depended on the balance at the end of the year. This technical detail is important as changes during a financial year may not reduce the tax liability for that financial year.
Our Advice: Don’t Rush, Stay Informed
- No knee-jerk reactions: The legislation is still in draft form and may change. Premature action could result in unnecessary tax or transaction costs.
- Scenario modelling is essential: We will work with you to model the impact of the proposed tax on your retirement savings and compare different strategies.
- Tailored planning: Every client’s situation is unique. The best advice will be specific to your goals, circumstances, and long-term objectives as there will not be a one size fits all approach.
- We will keep you updated: As the legislation evolves, we will provide further updates and guidance.
Next Steps
If your superannuation balance is near or above $3 million, please reach out to discuss your situation with your accountant. They can introduce you to a Boyce Private Wealth advisor to assist.
Review asset positions and consider whether your fund will have significant unrealised gains as at 30 June 2026. Stay tuned for further updates as more information becomes available.
