What You Need to Know
As has been widely published in the media over the past two years, the Australian Government has proposed changes to the way superannuation is taxed for individuals with balances above $3 million.
Under the proposed new law, Division 296 contribution tax of 15% will apply to the proportion of the individual's total superannuation balances above $3 million at the end of the financial year.
Whilst this bill did not pass Parliament prior to the May 2025 election, with the re-election of the Albanese Labor Government, the new tax is still subject to legislative passage.
Currently, earnings on superannuation are taxed at a concessional rate of up to 15%. Under the proposed changes, earnings on the portion of a super balance that exceeds $3 million will be taxed separately at an additional 15%.
Who Will It Affect?
If passed, this change will apply to individuals with a total superannuation balance over $3 million at the end of the 2026 financial year. It is expected to impact around 80,000 individuals — less than 1% of Australians with super — however, it’s important to understand how the new tax would be calculated and whether it may affect your retirement planning in the future.
Members who currently have pension balances that are exempt from income tax, may now be included to pay the proposed Division 296 tax.
How Will It Work?
Meet Sarah. Sarah is 60 years old and has a total super balance of $4 million on 30 June 2026.
Her total super balance increased from $3.8 million the year before. This $200,000 increase includes a mix of earnings and unrealised gains (for example, if her investments increased in value but weren’t sold).
Here’s how it would be calculated:
- Total earnings: $4.0M – $3.8M = $200,000
- Adjust total earnings by removing after tax contributions and adding back withdrawals including pension payments:- In this example NIL
- Proportion of balance over $3M: ($4.0M – $3.0M) / $4.0M = 25%
- Earnings subject to the additional 15% tax: $200,000 × 25% = $50,000
- Additional tax payable: $50,000 × 15% = $7,500
Sarah will receive a notice from the ATO with her tax liability and can choose to pay it personally or from her super fund.
What Should You Do Now?
Don’t act impulsively!
If the new tax is enacted in its current form, it’s quite possible that keeping your money within the superannuation environment might still be the best outcome.
If you’d like to discuss how this might impact your personal situation, please get in touch with our team. We can help you explore strategies to manage your super balance and tax obligations in the years ahead.