SUPERANNUATION NEW TAX – DIV 296 ON SUPER ACCOUNT BALANCES ABOVE $3M

Announcements from the government regarding the introduction of a new tax on superannuation members has prompted us to revisit strategies around superannuation funds and members, particularly SMSFs.

This tax targets members' earnings and contributions that exist on paper (not actual cash returns) and could result in an overall tax rate of between 55% and 77% on contributions into superannuation.

This doesn’t mean superannuation is no longer viable. For example, four members in an SMSF with $3 million each, or a fund with $12 million in protected assets taxed at a concessional rate, remains within existing structures and tax concessions.

The questions to consider now are:

• How does the new tax work?

• What options are available for members to reduce or avoid exceeding the $3 million threshold?

Some may assume they won’t be affected. However, AMP has modelled that a 22-year-old on an average salary may reach the $3 million cap prior to retirement.

At this stage, the Treasurer has indicated that the threshold will not be indexed.

How it Works

The measure starts on 1 July 2025, with the calculated balances taken as at 30 June 2026. First assessments are expected to be issued in March 2027.

Where a liability is incurred, the assessment will be issued to the individual, who can elect to transfer the liability to the super fund. The election must be made within 60 days of the assessment being issued.

Proposed Formula

Taxable Growth % = (TSB at 30 June 2026 – $3 million) ÷ TSB at 30 June 2026 Where: TSB = Total Super Balance ATSB = Actual TSB = TSB – after-tax contributions + withdrawals Growth $ = ATSB at 30 June – TSB at 1 July Growth $ × Taxable Growth % × 15% = Tax Liability

Considerations for SMSFs

The following strategies apply primarily to SMSFs, as most retail and industry super funds don’t provide the level of control or reporting needed.

• Members with multiple super accounts should consider consolidating into one account. This can be done through myGov.

• Members with balances above $3 million before 30 June 2025 may wish to consider strategies to reduce the balance before the deadline.

• Post 1 July 2025, members may also need to consider strategies to limit growth above the threshold, or manage contributions to keep balances steady.

  
  

There are currently more than 100 super funds where individual member balances exceed $100 million.

Example: Partner Reversion

A couple each has $2 million in super, both in pension phase. At face value, the tax does not apply. If one partner passes away and their balance reverts to the surviving partner, that individual now has $4 million in super, exceeding the cap.

This is sometimes referred to as a “widow’s tax.”

Planning Steps

Regardless of whether a member is above or below the cap now, trustees and members should begin considering whether contributions and earnings can be directed toward members with lower balances. An SMSF can have up to six members, which may provide options to manage this internally.

Key Takeaway

Whether you’re currently above or below the $3 million threshold, now is the time to take action.

Trustees and members should begin implementing strategies today to reduce the impact of future earnings and contributions on high balances, such as, diverting new contributions to members with lower balances.

And remember: an SMSF can have up to six members, giving you flexibility and planning opportunities.