What High-Balance Members Need to Know

As the 2024–25 financial year draws to a close, superannuants with large balances face a pivotal change. The March 2025 Budget introduced Division 296: a proposal to impose an additional 15 per cent tax on the portion of fund earnings attributable to Total Super Balances (TSB) above $3 million. Although the legislation has yet to pass through the Senate, the first tax notices are expected in mid‑2026. Planning now can preserve tens or even hundreds of thousands of dollars.

What Is Division 296?

Under the new rules, any “super earnings” — including both realised and unrealised gains — relating to the slice of your TSB that exceeds $3 million will attract an extra 15 per cent tax on top of the existing 15 per cent. In effect, that portion of earnings will be taxed at 30 per cent. The change applies from 1 July 2025, with the inaugural assessments for the 2025–26 year.

The most controversial aspect is the inclusion of unrealised gains: paper increases in market value, such as those in property or shares, will be taxed even if you haven’t sold the asset. Compounding the issue, the $3 million threshold is not indexed, meaning natural growth in balances will push more members over the line each year unless they take action.

Who Will Be Affected?

Division 296 applies on an individual basis, regardless of how many super funds you hold. Under the current draft:

  • Total Super Balance (TSB) includes all Australian super interests, though proposed amendments will strip out certain borrowing amounts (LRBA) to better reflect net assets.
  • Entry and exit tests hinge on your TSB at 30 June: if it exceeds $3 million, you may owe the extra tax; if it falls below, no Division 296 liability applies for that year.

Certain scenarios carry heightened risk. For example, legacy pensions in self-managed super funds remain recorded at their 2017 actuarial values—often 16 times the annual payment—and may overstate TSB as they age. Commuting those pensions into accumulation before 30 June 2025 can prevent inflated “reserve allocations” from becoming taxable earnings in 2025–26. Similarly, death-benefit pensions or insurance receipts transferred into super can push your TSB over the threshold without fresh contributions.

Legislative Status & Timing

Introduced in March 2025 as part of the “Better Targeted Superannuation Concessions” Bill, Division 296 is currently under Senate Economics Committee review. Key details still to be finalised include:

  • Indexation of the $3 million threshold: absent a legislative amendment, it will remain fixed, allowing inflation and market gains to ensnare more members.
  • Treatment of reserve allocations arising from pension commutations: crucial for trustees considering early commutation.
  • Potential threshold changes, with some parties advocating a lower limit, such as $2 million.

The Bill is expected to pass and take effect from 1 July 2025. However, transitional or deferral measures could be introduced, so keeping abreast of parliamentary updates is vital.

How Is Division 296 Calculated?

Each 30 June, your fund’s TSB is compared with the prior year’s TSB, capped at $3 million. The difference constitutes your fund’s “super earnings.” Only the growth above the $3 million cap is subject to the extra tax. Here’s a simplified illustration:

If your TSB rose from $3.2 million (capped at $3 million) to $3.8 million in a year, net growth is $0.6 million. Of that, $0.2 million is above the $3 million cap. Division 296 applies 15 per cent tax to that $0.2 million, resulting in a $30 000 liability.

Notably, earnings include unrealised gains—market movements on assets you still hold. As a result, valuation accuracy at 30 June is critical, especially for unlisted or hard-to-value assets.

Act Before 30 June 2025? Who Should Move Now

SMSF trustees with legacy pensions should model commutation scenarios without delay. By moving legacy pensions into accumulation before the key date, you can prevent reserve allocations from being treated as earnings in the next year.

For accumulation-phase members close to $3 million, options include partial withdrawals (if conditions of release are met) or pausing contributions until after the 2025–26 year. High-balance APRA fund members face the same threshold, albeit with different calculation methodologies, and should likewise review asset mix and valuations as at 30 June 2025.

Strategies to Consider

No single strategy suits everyone, but high-balance members may explore:

  • Wait and see: If your balance is well below $3 million, you might defer action until legislative details and transitional arrangements solidify. Remember, first tax notices will not arrive until mid‑2026.
  • Asset reallocation: Growth assets such as direct property and unlisted investments can generate steep unrealised gains. Shifting to income-producing or lower-volatility assets within super may reduce Division 296 exposure. Be diligent with fair, conservative valuations on 30 June 2025.
  • Alternative structures: If a condition of release is met, consider withdrawing amounts above $3 million to invest in vehicles outside super—family trusts, investment companies or bonds—where earnings face flat tax rates (often 30 per cent) and are not subject to Division 296.
  • Pause contributions: If planned contributions will tip you over $3 million by 30 June 2026, consider reducing or deferring them until after that date.
  • Spousal splitting: By equalising contributions between spouses, neither partner may exceed $3 million, preserving both thresholds.

Each option carries pros and cons—stamp duty, capital gains tax and loss of concessional growth environments must be weighed carefully with professional advice.

Risks of Doing Nothing

Failing to plan carries significant risks:

  • Automatic 15 per cent inclusion on all earnings above $3 million (30 per cent combined).
  • Unrealised gains taxed, even if assets remain illiquid, forcing possible mid-year disposals.
  • Cash‑flow shocks: ATO notices in 2026–27 may require urgent withdrawals or asset sales.
  • Ongoing compliance complexity, with annual TSB calculations, detailed record‑keeping and potential disputes.

Next Steps

  1. Review your 30 June 2025 TSB, including all pension values and reserve allocations.
  2. Model scenarios—with and without Division 296—to quantify potential tax liabilities under different asset mixes.
  3. Develop a preliminary plan: consider commutation, withdrawals, reallocation or alternative structures aligned with your long‑term objectives.
  4. Monitor legislative progress, especially any changes to threshold indexation, reserve treatment or commencement dates.

Take control now: contact Rosenfeld Kant for a bespoke TSB review and strategy session well before 30 June 2025. With careful planning, you can safeguard your hard-earned super balance and navigate Division 296 with confidence.

Disclaimer: This article is for educational purposes only and does not constitute personal financial advice. Always seek tailored advice from a qualified professional.