Back to the Drawing Board – for Division 296 Tax.

29 October 2025

The Treasurer has announced (Monday 13 October 2025) that the proposed additional tax of 15% on earnings attributable to large super balances is no longer on the drawing board. Instead, a revised, reworked and considerably more super friendly replacement tax, will apply.

What are the main details of Division 296 Tax Version 2.0?

  • Version 2.0 will apply from 1 July 2026. Consequently, the first assessments for the tax will apply to the 2026/27 financial year but will be issued during the 2027/28 financial year.  Division 296 Tax Version 1.0 was to apply from 1 July 2025.
  • Version 2.0 will apply to realised gains and earnings and not to increases in the total super balance. (Version 1.0 was to apply to paper gains).
  • Version 2.0 will have two rates – a lower rate of 15% and a higher rate of 25%. (Version 1.0 had only one rate which was 15%).
  • The 15% tax rate under Version 2.0 will apply to (actual/realised) super earnings attributable to super balances in excess of $3m but less than $10m.
  • The 25% tax rate under Version 2.0 will apply to (actual/realised) super earnings attributable to super balances in excess of $10m.
  • The thresholds of $3m and $10m will be indexed to movements in the Consumer Price Index in the same manner as currently applies to the indexation of the Transfer Balance Cap. The dollar thresholds will be adjusted in increments of $150,000 for the $3m threshold and $500,000 for the $10m threshold. 
  • Super earnings can now be taxed at either zero rate (if in pension phase), 15% if in accumulation phase, 30% (in total, 15% being the normal accumulation rate plus 15% being the low rate of Division 296 tax) and 40% (in total – 15% being the normal accumulation rate plus 25% being the high rate of Division 296 tax rate).

What is unchanged between Versions 1.0 and 2.0?

  • The ATO will still initiate the issue of Division 296 Tax assessment notices based upon information reported to the ATO by super funds.
  • The Division 296 tax assessment still remains an assessment of tax issued in the name of the member.
  • The calculation of Division 296 tax assessment will still be based upon Total Super Balance of the members and the allocation of total earnings (rather than increase in total super balance).
  • The Member will still have the option of paying the assessed Division 296 Tax from non-super assets or have the ATO collect the tax from their superannuation accounts via a release authority.

SUPERCentral’s Comments

  • The change from taxing “paper” or “unrealised gains” to taxing realised gains, remedies one of the main defects of Version 1.0.
  • The indexation of the thresholds remedies the second main defect of Version 1.0.
  • The decision to defer the commencement date by 12 months is sensible, given the nature of the changes – both to redraft the legislation and also for the industry and the ATO to develop and implement the various systems and software changes arising from the revised version.
  • The key elements of the Division 296 Version 2.0 are “Total Super Balance (current financial year)” and “total earnings” of the member.
  • It seems that “Total Super Balance (current financial year)” of the member is the Total Super Balance of the member at the end of the current financial year.
  • It seems “total earnings” of the member is that aggregate of the amount of total earnings of each super fund which has been attributed to the member. Total Earnings of each super fund will be the taxable income for the financial year of the fund, adjusted for contributions and pension phase income. 
  • The information released on 13 October does not specify the precise adjustment of taxable income – possibly deductible contributions are excluded and pension phase income of the fund is added back – to give the total earnings of the fund.

What if taxpayers have already transferred value from the Super System in anticipation of the introduction of Division 296 Version 1.0?

Unfortunately, if assets have already been removed from the Super System – whether by in-specie transfer or sale to a third party and payments of the sale proceeds as a benefit payment – there is no automatic right to return the assets to the Super System. Generally, this can only be achieved by making a new contribution of the asset and thereby subject to the contribution caps.

Further, if the relevant member has attained age 75, in general no further member contributions can be made unless they are downsizer contributions or made within 28 days of the end of the month in which the member attained age 75.

Will Division 296 Version 2.0 generate much revenue for the Government?

The Treasurer has indicated that the expected net increase in revenue from Division 296 Version 2.0 (after allowing for the increase in the Low Income Superannuation Tax Offset – which was also announced on 13 October 2025) in the first full year of operation (being 2028-29) is expected to be about $1,600m).

While $1,600m is a large amount, this increase in revenue will finance NDIS scheme for about 10 days (given the current spend rate of the NDIS).

 

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