A new calculation to consider

The calculation of the proposed tax on total super balances above $3 million is not just a matter of adding 15 per cent on top of what members are currently charged. BT technical consultant Matt Manning details exactly how the new liability will be calculated.

The federal government has proposed a reduction in the super tax concessions for those with total super balances (TSB) exceeding $3 million. The new tax on super, Division 296 of the Income Tax Assessment Act 1997 (ITAA), is proposed to apply to the 2026 financial year and beyond.

While advisers have ample time to plan for the anticipated changes, many are getting on the front foot and working out which clients might be affected and how much additional tax each one would have to pay. This article briefly describes the operation and features of the proposed Div 296 tax and outlines in detail how to calculate the tax liability via case studies.

Details on the new tax

Legislation implementing Div 296, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, was introduced into parliament on 30 November 2023. At time of writing, the bill has not passed through the lower house.

When the bill does become law, from 1 July 2025, affected clients will pay an additional 15 per cent tax on earnings corresponding to the portion of their super balance above $3 million.

Div 296 is proposed to apply to clients whose TSB exceeds the threshold of $3 million (unindexed) and where there has been an increase in their TSB between June 30 of the relevant financial year and their TSB as at 30 June of the previous financial year adjusted for withdrawals and contributions.

This change in the adjusted TSB is termed taxable super earnings (TSE) and includes unrealised capital gains.

The 15 per cent Div 296 tax rate will apply to the percentage of a client’s TSB exceeding $3 million and is separate from and in addition to the 15 per cent tax that applies to most earnings generated in the accumulation phase of super.

Div 296 tax will be levied on the client as an individual, who will have a choice to either pay the liability personally or from their super fund via a release authority.

There are three exemptions from the Div 296 tax:

• those who pass away are not subject to the new tax for the financial year of death, (although an existing anomaly means this exemption does not apply to people who die on 30 June),

• those who have ever made a personal injury contribution, as defined by section 292-95 of the ITAA, and

• child death benefit pensions, for as long as the pensions exist.

Also, while technically not an exemption category, constitutionally protected schemes and judges’ pensions will be exempt. However, as TSBs from such schemes are included in the client’s Div 296 calculation, the client’s other super may be subject to the new measure.

Examples of Div 296 calculations are included below. It is important to note, as this article is based on draft legislation, the examples set out below may change depending on the final legislation.

Calculations

A client’s Div 296 liability for the 2026 financial year is determined by the following minimum five-step process:

Step 1 – Determine if relevant

The first step is to determine whether Div 296 tax is relevant. Here there are three possible scenarios:

Scenario 1

Step 1 – Determine if earnings exist

Is the client’s TSB as at 30 June 2026 greater than $3 million and their TSB as at 30 June 2026, plus 2025/26 withdrawals, less 2025/26 contributions, less their TSB as at 30 June 2025 greater than $0?

If yes, the client will be subject to Div 296 tax for 2025/26 and there are a further four steps to determine their resulting liability.

Step 2 – Calculate TSE for 2025/26

For scenario 1, this formula will always result in positive 2025/26 TSE; that is, more than $0.

• TSB as at 30 June 2026, plus

• 2025/26 withdrawals, less

• 2025/26 contributions, less

• the greater of their TSB as at 30 June 2025 and $3 million.

Step 3 – Reduce positive TSE for 2025/26 by carried-forward negative TSE from previous financial years

For 2025/26, the result of step 3 will always be the same as the result of step 2.

This is because a client cannot accrue a TSE loss prior to 2025/26.

Step 4 – Calculate the percentage of TSE subject to Div 296 tax

The formula is as follows:

(TSB as at 30 June 2026 – $3 million) ÷ TSB as at 30 June 2026

Note that, unlike step 2, in step 4 the $3 million Div 296 threshold is always used.

Step 5 – Calculate Div 296 tax liability.

The formula for this step is as follows:

15% x result of step 3 x result of step 4

Scenario 2

Step 1 – Determine if negative earnings exist

If scenario 1 does not apply, is the client’s TSB as at 30 June 2025 greater than $3 million and their TSB as at 30 June 2026, plus 2025/26 withdrawals, less 2025/26 contribution, less their TSB as at 30 June 2025 less than $0?

If yes, there is no Div 296 liability for 2025/26, however, the client will have a TSE loss they can carry forward to future financial years. Determining this carried forward TSE loss requires one further step.

Step 2 – Calculate TSE for 2025/26

For scenario 2, this formula will always result in negative 2025/26 TSE, that is, less than $0.

The client’s 2025/26 negative TSE is:

• the greater of their TSB as at 30 June 2026, and $3 million, plus

• their 2025/26 withdrawals from super, including pension payments and lump sum withdrawals, less

• their 2025/26 contributions to super (net of contributions tax), less

• their TSB as at 30 June 2025.

A client’s negative TSE is the amount that can be carried forward to offset positive TSE in future financial years.

Steps 3 to 5 are not required.

Scenario 3

If neither scenario 1 nor scenario 2 applies, Div 296 tax is not relevant for 2025/26, and steps 2 to 5 are not required.

Case study 1

Adam is age 50 and his entire super is in the accumulation phase.

His TSB as at 30 June 2026 is $12 million and his TSB as at 30 June 2025 is $11.5 million.

During 2025/26, Adam does not receive any withdrawal and makes total concessional contributions of $20,000 prior to deducting contributions tax.

Step 1 – Is Adam subject to Div 296 during 2025/26?

Yes. Adam’s TSB at 30 June 2026 exceeds $3 million and his TSB as at 30 June 2026, plus his 2025/26 withdrawals, less his 2025/26 contributions, and less his TSB as at 30 June 2025 is greater than $0.

Therefore scenario 1 applies.

Step 2 – Calculate Adam’s TSE for 2025/26

Contributions for Div 296 purposes are net of the standard 15 per cent contributions tax. Therefore [$20,000 total concessional minus ($20,000 total concessional contributions x 15 per cent)] = $17,000.

# In Adam’s situation, $11.5 million is the greater of his $11.5 million TSB as at 30 June 2025 and the $3 million Div 296 threshold.

Step 3 – Reduce Adam’s positive TSE for 2025/26 by his carried-forward negative TSE from previous financial years

The result remains $483,000 from step 2 as TSE losses cannot be accrued prior to 2025/26.

Step 4 – Calculate the percentage of Adam’s TSE subject to Div 296 tax

Step 5 – Calculate Adam’s Div 296 tax liability

Case study 2

Betty is age 70 and has super in both the accumulation phase and pension phase.

Her TSB as at 30 June 2026 is $4 million, consisting of $1.5 million in pension phase and $2.5 million in accumulation phase, and her TSB as at 30 June 2025 is $3.667 million, consisting of $1.5 million in pension phase and $2.167 million in accumulation phase.

During 2025/26, Betty receives total withdrawals of $150,000 and does not make any contributions.

Step 1 – Is Betty subject to Div 296 during 2025/26?

Yes. Betty’s TSB as at 30 June 2026 is more than $3 million and her TSB as at 30 June 2026, plus her 2025/26 withdrawals, less her 2025/26 contributions, less her TSB as at 30 June 2025 is greater than $0.

Therefore scenario 1 applies.

Step 2 – Calculate Betty’s TSE for 2025/26

# In Betty’s situation, $3,667,000 is the greater of her $3,667,000 TSB as at 30 June 2025, and the $3 million Div 296 threshold.

Step 3 – Reduce Betty’s positive TSE for 2025/26 by her carried-forward negative TSE from previous financial years

The result remains $483,000 from step 2 as TSE losses cannot be accrued prior to 2025/26.

Step 4 – Calculate the percentage of Betty’s TSE subject to Div 296 tax

Step 5 – Calculate Betty’s Div 296 tax liability

Note, despite Adam (case study 1) and Betty (case study 2) having the same 2025/26 TSE of $483,000, Adam’s Div 296 tax liability is three times higher than Betty’s. This is because the percentage of Adam’s TSE subject to Div 296 is three times that of Betty’s.

This illustrates that, assuming everything else is equal, the more funds a client has in super, the higher their Div 296 tax liability, as a higher portion of their TSE relates to their TSB amount above the $3 million threshold.

These case studies also illustrate a client’s age and how much of their super is in pension or accumulation phase does not impact the Div 296 calculation. Further, while withdrawals and contributions are included in the TSE calculation, they are not relevant when determining the percentage of a client’s TSE subject to Div 296 tax.

Case study 3

Cameron is age 55 and his entire super is in the accumulation phase.

His TSB as at 30 June 2026 is $3.1 million and his TSB as at 30 June 2025 is $2.1 million.

During 2025/26, Cameron does not receive any withdrawals from or make any contributions to his super.

Step 1 – Is Cameron subject to Div 296 during 2025/26?

Yes. Cameron’s TSB as at 30 June 2026 exceeds $3 million and his TSB as at 30 June 2026, plus his 2025/26 withdrawals, less his 2025/26 contributions, less his TSB as at 30 June 2025 is greater than $0.

Therefore scenario 1 applies.

Step 2 – Calculate Cameron’s TSE for 2025/26

# In Cameron’s situation, $3 million is the greater of his $2.1 million TSB as at 30 June 2025 and the $3 million Div 296 threshold.

Step 3 – Reduce Cameron’s positive TSE for 2025/26 by his carriedforward negative TSE from previous financial years

The result remains the $100,000 from step 2 as TSE losses cannot be accrued prior to 2025/26.

Step 4 – Calculate the percentage of Cameron’s TSE subject to Div 296

Step 5 – Calculate Cameron’s Div 296 tax liability

Note, despite the large increase in Cameron’s TSB between 30 June 2025 and 30 June 2026, his Div 296 liability is minimal. This is because a client’s TSE does not include the increase in their adjusted TSB that is below the $3 million threshold.

This also illustrates there is minimal benefit in a client’s TSB being slightly below, compared to slightly exceeding, the $3million threshold.

Case study 4

Debra is age 70 and her entire super is in pension phase.

Her TSB as at 30 June 2026 is $3.2 million and her TSB as at 30 June 2025 is $3.5 million.

During 2025/26, Debra receives total withdrawals of $200,000 and does not make any contributions.

Step 1 – Is Debra subject to Div 296 during 2025/26?

No. Debra’s TSB as at 30 June 2026, plus her 2025/26 withdrawals, less her 2025/26 contributions, less her TSB as at 30 June 2025 is $0 or below.

However, as Debra’s TSB as at 30 June 2025 is greater than $3 million, scenario 2 applies and she will have a TSE loss to carry forward to offset any positive TSE in a future financial year.

Step 2 – Calculate Debra’s TSE for 2025/26

# In Debra’s situation, $3.2 million is the greater of her $3.2 million TSB as at 30 June 2026 and the $3 million threshold.

Steps 3 to 5 are not required for Debra. She has a 2025/26 TSE loss of $100,000 that she can carry forward to offset positive TSE in future financial years.

What’s next

It is early days still and it is expected to take several months for the relevant bill to become law.

While the actual rate will significantly vary, for funds in accumulation phase the new measure will not increase the effective tax on earnings rate to 30 per cent. As shown in case study 2, only 25 per cent of the client’s TSE was subject to the new tax, and even case study 1, which involved an extremely high super balance, the 15 per cent Div 296 tax rate applied to 75 per cent of the client’s TSE.

Some details that potentially may be worked out as the legislation makes its way through parliament include:

• Liquidity issues: Unlike the standard tax on investment earnings, Div 296 tax is also imposed on unrealised capital gains. This could cause liquidity issues, particularly for those clients whose wealth consists almost solely of illiquid assets such as property. Under the draft bill, clients who do not pay their Div 296 tax liability will accrue a Div 296 debt and be charged interest at a reduced rate of general interest charge (currently this would equate to 7.34 per cent). Multiple years of Div 296 tax liability and compounding interest may over time effectively result in clients with SMSFs taking the extreme action of selling the fund’s main asset to meet their Div 296 tax obligation.

• $3 million threshold is not indexed: Div 296 tax is initially predicted to impact a small number of Australians with very high super balances, approximately 80,000 by government extimates. If this threshold remains unindexed, over time this number will likely significantly increase as investment balances rise. Also, for members of a couple, upon death of the first spouse, the surviving spouse may find themselves subject to the new tax if they receive their late spouse’s death benefit as a pension.

• Ability to withdraw: Clients who satisfy a condition of release such as retirement may choose to withdraw part of their super to remain under the $3 million threshold, however, this option is not available to those who do not satisfy a condition of release.

• Negative super earnings: Negative TSE can only be carried forward to future financial years. This could result in clients paying significant Div 296 tax on unrealised capital gains, only to then see the value of these assets significantly fall (even to a loss position) and not have the ability to claw back the Div 296 tax previously paid on unrealised gains.

It will take some time for such details to be addressed, however, it is not too early for advisers to discuss the potential changes with clients and plan to adjust their super and tax strategies accordingly.