On 30 November 2023 the government tabled legislation to modify the existing superannuation tax concessions through a measure called Better Targeted Superannuation Concessions. This initiative intends to limit tax concessions for individuals by introducing an extra 15% tax on superannuation earnings over $3 million (known as Division 296 tax) starting 1 July 2025.

The new legislation is estimated to increase revenue by $950 million and increase payments by $47.6 million over the 5 years from 2022-23. By 2027–28, the first full year of receipts collection, the measure is expected to increase revenue by $2.3 billion.

Unlike most taxes imposed on citizens, the Div 296 tax is the first legislation to tax unrealised capital gains earned prior to 1 July 2025. So if you were a keen investor and saver and have accrued significant unrealised gains prior to 1 July 2025 they will be included in the calculation of the taxable earnings for the Div 296 tax.

While the proposed legislation has not yet been passed, if it is then people will have until 1 July 2025 to explore strategies to reduce or eliminate their tax liability. In the meantime below are some points of interest regarding the proposed legislation:

• The tax is unlikely to be incurred every year
  The tax is based on taxable earnings due to the growth of the member’s account. If the member’s account reduced due to negative investment returns, no tax will be payable. Recent modelling from the ANZCA indicates that if the tax was introduced 20 years ago, tax would be payable in only 7 of these 20 years due to fluctuating returns.
• The tax is only payable on the portion of the balance over $3m
  If your total superannuation balance is over $3m you will be subject to the 15% Div 296 tax, but it will only be applied to the portion over and above $3m. You could reduce the tax to nil by withdrawing enough funds to bring the balance back down under $3m prior to June 30 2026. Note any new contributions will be subject to contribution limits.
• Don’t die on 30 June!
  If you die on any day other than 30 June you will not be subject to the tax, if you die on 30 June and your TSB is over $3m, you may be subject to the tax.
• The threshold is not indexed
  The Government has estimated that approximately 80,000 people or approximately 0.5% of Australians with a superannuation account in the 2025-2026 income year will be impacted by the tax, however the shadow treasurer warned the tax will impact significantly more Australians as it is not indexed. Early opposition modelling suggests the new tax will impact 10% of Australian superannuation account holders within 30 years.

If you would like more information on the proposed Div 296 tax and how it affects you, please contact your advisor.

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.