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Significant changes to Division 296 tax
On 13 October 2025 the Federal Treasurer announced some significant changes to the design of the proposed Division 296 tax. Some of the key changes are:
- Introduction of a second large superannuation balance threshold of $10 million with an additional
25% tax imposed on earnings attributable to a total superannuation balance (TSB) in excess of
$10 million. - Indexing the thresholds of $3 million and $10 million to CPI.
- Moving to a realised earnings approach that aligns to existing income tax concepts. No longer will the tax be imposed on unrealised gains.
Rather than ATO-reconstructed member-level earnings based on balance movements, the revised model
moves to a fund-level realised-earnings approach. Funds (including SMSFs) will calculate their taxable/realised earnings for the year, attribute an appropriate share of those earnings to members
whose total superannuation balance (TSB) exceeds the lower threshold, and report those figures to the ATO. The ATO will continue to aggregate TSBs across all super interests for each individual and issue any
liability notices. This is a practical shift of compliance responsibilities from ATO reconstruction to trustee
calculation and reporting.
The tax outcome is progressive across two bands. For the portion of a member’s TSB between $3 million and $10 million, an additional 15% tax applies to the attributable earnings (on top of the fund’s existing 15% rate). For amounts above $10 million, an additional 25% tax applies to attributable earnings (on top of the fund’s existing 15% rate, bringing the total tax rate to 40%). Both thresholds will be indexed (the $3m threshold in $150,000 increments and the $10m threshold in $500,000 increments).
The start date is proposed to be 1 July 2026 with the first time an individual’s TSB will be assessed against
the Division 296 thresholds to be 30 June 2027. This will make 2026-27 the first Division 296 income year
with the first assessments to issue in 2027-28.
