Will your super be affected when the $3 million balance tax hits?

Since February 2023, the Australian government has been planning to introduce a new tax of 15% on a portion of “earnings” relating to total superannuation balances over $3 million. The idea was to inject some equity in a system with generous tax concessions weighted in favour of the wealthy. The tax change was proposed to kick in on 1 July 2025.  

Debate over issues concerning the non-indexed $3 million threshold and the taxation of unrealised capital gains then put the proposal on ice. The Bill containing the change is expected to be reintroduced now that Parliament has resumed (from 22 July 2025). The Bill as it was previously presented proposed to insert a new Division 296 into the Income Tax Assessment Act 1997, which is why you might hear the change called the “Division 296 tax”.

What will apply and when?

Currently, your entire super balance earnings in accumulation are taxed at 15%. 

If your “total superannuation balance” (TSB – meaning all of your super, in all accounts, in accumulation and in pension phase) is under $3 million, the new additional tax would not apply.

The Division 296 measure would apply another 15% tax on a portion of estimated “earnings” relating to your TSB that’s over $3 million. This tax would be charged to you personally, rather than to the super fund. The “earnings” calculation is quite complicated, and doesn’t reflect the actual earnings in your fund (which is why we’re using quotation marks for “earnings”). 

For example, if you start the year with a $3 million property in your super fund, and it’s worth $3.5 million by the end of the year, a portion of the $500,000 unrealised capital gain would be taxed to you personally. If this was the only asset in all of your super, and you made no contributions or withdrawals during the year, and received no actual investment earnings, the Division 296 tax calculation could look something like this:

TSB minus $3 million threshold: $3,500,000 – $3,000,000 = $500,000
Percentage of TSB that the excess represents: $500,000 / $3,500,000 = 14.29%
Proportional calculation to get Division 296 taxable earnings: $500,000 × 14.29% = $71,450
Division 296 tax payable: $71,450 × 15% = $10,717.50
So, $71,450 in earnings would be taxed at the additional 15%, for an additional tax liability of $10,717.50.

Furthermore, if your property didn’t earn any real income in your fund, then you’d need to be able to fund the tax payment from an alternative source if you didn’t want to sell the property. The calculation of “earnings” is complex and adds back any withdrawals and subtracts any contributions, to ensure people don’t make last-minute withdrawals specifically to reduce their “earnings”.

This is a very simplified example – transactions like receiving insurance payouts, withdrawing amounts under the First Home Super Saver Scheme and other factors could affect your “earnings” and therefore the calculated tax amount.

As already mentioned, the additional tax isn’t law yet. Once the change is passed by Parliament, the tax would apply at the end of this current financial year (2025–2026) and be assessed based on your TSB as at 30 June 2026. It will be possible to carry forward losses incurred in financial years thereafter to reduce later liability.

Can you withdraw super to avoid the tax?

If you’re under preservation age you generally can’t withdraw your super. Over 65, or over 60 and retired? You can of course withdraw as and when you choose. You just need to be aware of the impact of any withdrawals on the “earnings” calculation. However, the good news is that although withdrawals will be added back to earnings, you won’t be subject to the Division 296 tax if your TSB (again, all your super accounts, whether in pension or accumulation phase) is less than $3 million at the end of the year. So there’s still time to consider strategies to move amounts out of super, if that will benefit your overall situation.

How do you pay?

The ATO will advise about your liability for 2025–2026 year during the following year. You’ll be able to pay out of pocket or directly from your super fund. If you have more than one fund, you can nominate from which fund you’d prefer to pay.

Before the new policy’s set in stone, if you think you may be affected it would be wise to seek advice before making any hasty decisions. 

Source: Australian Treasury - Better targeted superannuation concessions 
Australian Treasury - Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023