The government has released draft legislation to introduce an additional tax (referred to as ‘Division 296 tax’) on the ‘earnings’ of superannuation members with balances over $3 million.

The measures are fundamentally unchanged from the government’s initial announcement, the most controversial being the capturing of unrealised gains under the definition of ‘earnings’ and lack of indexation of the $3 million threshold.

The exposure drafts provide some extra detail and expand on certain definitions that are integral to the calculation of ‘earnings’.

Key points that have been clarified in the drafts are:

Individuals exempt from Division 296 tax

• child recipients of superannuation income streams at the end of the income year;
• individuals who have a structured settlement contribution made in respect to them as a payment for a personal injury at the end of the income year, or any year prior; and
• individuals who died before the last day of the income year.

Earnings

Super earnings are calculated as the difference between the current adjusted total superannuation balance (TSB) and the previous TSB.

Adjusted TSB at the end of an income year is the TSB at the end of the year plus withdrawals for the year less contributions for the year.

If an individual’s current adjusted TSB or previous TSB is below the $3 million threshold, then it is to be substituted with the threshold number of $3 million, known in the draft legislation as the ‘large superannuation balance threshold’. This is to ensure ‘earnings’ (positive or negative) are only captured for the part of the TSB in excess of $3 million.

Example 1
TSB on 30.6.2025                            $2.8m

Adjusted TSB on 30.6.2026           $3.2m

Substitute TSB on 30.6.2025 with $3m

Earnings = $3.2m less $3m           $200,000

Example 2
TSB on 30.6.2025                            $3.2m

Adjusted TSB on 30.6.2026           $2.8m

Substitute TSB on 30.6.2026 with $3m

Earnings = $3m less $3.2m            -$200,000

What are withdrawals?

• a superannuation benefit payment;
• superannuation benefits transferred via spousal contribution-splitting;
• superannuation benefits transferred to another person via a family payment split;
• amounts withheld from an excess untaxed roll-over amount;
• amounts released under a valid requested release authority; and
• any amounts prescribed by regulations.

What are contributions?

• contributions made to the individuals superannuation plan (or 85% of the amount for concessional contributions);
• contributions-splitting superannuation benefits payments;
• family law superannuation payments made due to a payment split;
• the TSB value of a superannuation death benefit interest when the individual becomes a retirement phase recipient;
• a death or total and permanent disability insurance payment or contingent beneficiary payment (with the exception of continuous disability payments);
• any amounts allocated to the individual’s superannuation plan that are captured within the meaning of concessional contributions under subsection 291-25(3);
• a transfer from a foreign superannuation fund;
• the increase in TSB value of a superannuation interest as a result of a remediation payment or compensation for loss as a result of fraud or dishonesty; and
• any amounts prescribed by regulations.

Total superannuation balance (TSB)

For Division 296 purposes only, TSB excludes the amount that some members with Limited Recourse Borrowing Arrangements are ordinarily required to include in their TSB for other purposes. This ensures that Division 296 tax is only calculated on net assets.

Payment of Division 296 tax liability

With the exception of tax deferrals on defined benefit interests, Division 296 tax will generally be due 84 days after a notice of assessment is issued.  The explanatory materials refer to this timeframe as an allowance for individuals that may have less predictable sources of income.

The government has invited interested parties to make submissions during the consultation period which closes on 18 October 2023.

Contact Pilot

To discuss how these proposed changes might impact you, contact Angela Stavropoulos or Kristy Baxter on taxmed@pilotpartners.com.au or (07) 3023 1300.