DIV296 Update: Amendments to the proposed super tax 

Division 296 tax, first initially proposed in 2023 as part of the government’s ‘Better Targeted Superannuation’ policy, was designed to target individuals with superannuation balances exceeding $3 million. It was initially set to commence on July 1, 2025. Read our previous article about DIV296.  

Concerns about the initial legislation focused on the lack of indexation relating to the $3m threshold, meaning an increasing amount of Australians would gradually fall into the tax bracket. In addition, the proposal had drawn strong criticism relating to the tax also applying to unrealised gains.

A tax on unrealised gains is a tax on the fluctuating movements in the market values of certain types of assets, such as shares, not on income generated. In short, this would have been a tax on earnings that may still fluctuate and therefore not eventuate into a capital gain – contradicting existing tax concepts. 

Treasurer Jim Chalmers recently announced changes to the proposed legislation following stakeholder feedback which has been widely commended for providing a clearer structure and predictability. 

The implementation has been postponed by one year, with the first measurement point on June 30, 2027, and assessments starting in the 2027-28 financial year.

• Taxing only realised earnings—such as dividends, interest, rent, and realised gains—rather than unrealised capital gains.
• A tiered tax rate system has been introduced: an additional 15% tax applies to earnings on balances between $3 million and $10 million (totalling 30% tax), and an additional 25% tax applies to earnings on balances over $10 million (totalling 40% tax).
• Both the $3 million and $10 million thresholds will be indexed to the Consumer Price Index (CPI) to account for inflation, increasing in increments of $150,000 and $500,000 respectively. Realised earnings will be calculated based on the super fund’s taxable income, adjusted for contributions and pension phase income.
• The Australian Taxation Office (ATO) will bill individuals directly for the tax, separate from their super fund’s tax, with options to pay from personal funds or via a super fund release. Negative earnings can be carried forward to offset future liabilities.

These changes aim to make superannuation tax concessions more equitable, ensuring superannuation serves as a retirement savings tool rather than a tax shelter for the wealthy. Changes to the legislation still need to be introduced and then be passed by parliament. 

In the meantime, individuals with high super balances and those with large assets within SMSFs are advised to seek professional financial advice when final rules are confirmed.

To find out more about your superannuation and retirement plans, speak to a Mercer Financial Adviser.