Division 296 – most likely proceeding – legislation yet to be reintroduced.

When the Federal Parliament was prorogued to facilitate the 2 May 2025 election, all Bills then before Parliament lapsed.

When the Federal Parliament is recalled, the Bills implementing the Division 296 must be reintroduced. Presumably, these Bills will be reintroduced without any material changes and will most likely have a short and successful passage through the Parliament – in both the Representatives and the Senate.

The following simple example illustrates the application of the proposed Division 296 (based upon the lapsed Bill). While Division 296 tax will be 15%, the tax is applied to the “earnings” which are attributable to that portion of a member’s super balance which exceeds the $3m threshold. This simple example assumes the member, Mary, has an interest in only one superannuation fund – but has a pension account and also an accumulation account within that fund.

The new tax (commonly referred to as Division 296 – after the Division of the income tax legislation which sets out the method of calculating the tax) is proposed to apply from the 2025/26 and subsequent financial years. This tax will be at the rate of 15% and will apply to the earnings attributable to the portion of a member’s superannuation balance over $3m. This tax will be imposed on the member but will be paid by the super fund with the super fund debiting the member’s accounts with the payment.

As a general statement, Division 296 tax will only affect members whose adjusted total superannuation balance (Adjusted TSB) at the end of a financial year exceeds $3m. Adjusted TSB is the value of the total superannuation balance of a member at the end of the financial year, increased by the total superannuation payments (whether pension or lump sum) made to the member during the financial year but excluding contributions made by or in respect of that member during the financial year.

Example

Mary has two superannuation accounts – one for her pension and another for her accumulation balance.

During the 2025/26 financial year she received $250,000 of benefit withdrawals and made a $30,000 contribution.

At 1 July 2025 her TSB was $2.5m and at 30 June 2026 her TSB was $3.2m.

Step 1    

Determine the start and end values of her TSBs – these are $2.5m (start of the financial year) and $3.2m (end of the financial year)

Step 2    

Determine her Adjusted TSB – this is her TSB at the end of the financial year increased by the total super payments made to her during the financial year less the total of all superannuation contributions made by or for her during the financial year. 

Mary’s Adjusted TSB is $3.42m (being $3.2m plus $250,000 (payments) less $30,000 (contributions)

Step 3    

Calculate the percentage of the end value of Mary’s TSB which exceeds $3m.

This is 6.25% calculated as 

Step 4     

Calculate Mary’s “TSB increase” for the financial year.

TSB increase is Adjusted TSB − (greater of TSB at the start of the year or $3m)

This is $420,000 being $3.42m less $3m (as her TSB at the start of the financial year was less than $3m).

Step 5     

Calculate Mary’s taxable TSB earnings - that is her TSB increase attributable to the portion of her TSB greater than $3m.

This is calculated by applying the percentage determined at Step 3 to the TSB increase determined at Step 4.

Taxable TSB increase = $26,250 (being 6.25% x $420,000)

Step 6     

Calculate the Tax

The Division 296 Tax = 15% x Taxable TSB increase

In Mary’s case, the Division 296 Tax for the 2025/26 financial year is, $3,938 (being 15% x $26,250) (rounded up)