Targeted Super Concession Changes Looming
In a bid to improve the fiscal sustainability of the superannuation system, one of the areas explored by the government when it first came to power was to rein in concessions provided to those with high total super balances. Draft legislation has now been released for consultation detailing the mechanisms of the proposal to impose a tax of 15% on certain earnings based on the percentage of total super balance exceeding $3m via the introduction of a new Div 296 of the Income Tax Assessment Act 1997 (Cth) (Div 296 tax).
Currently, earnings on superannuation balances are taxed at 15% regardless of the total balance of super an individual has and is paid through the super fund. The changes proposed will mean those individuals with super balances above $3m will be taxed an additional 15%, imposed directly on the individual, on top of the 15% already paid through the super fund (therefore, up to 30% maximum in total), on a percentage of earnings above the $3m threshold from the 2025-26 income year. The tax treatment of individuals with a total super balance below $3m will not change and they will continue to be taxed at the 15% rate through the super fund.
Balances of all Australian super accounts will be included for the purposes of calculating an individual’s total super balance and earnings, including APRA-regulated funds, SMSFs, and exempt public sector schemes.
Example
Jerry has $2m in his SMSF and $2.5m in an APRA fund on 30 June 2025. This grows to $2.5m and $2.8m respectively, on 30 June 2026. Therefore, Jerry’s total super balance (TSB) is $4.5m on 30 June 2025 and $5.3m on 30 June 2026. Jerry is still working and his employer makes total concessional contributions of $25,000 to his SMSF during the 2025-26 income year. He also sells his home and makes a downsizer contribution of $300,000 to his APRA fund.
To work out Jerry’s adjusted TSB at the end of 30 June 2026, the concessional contributions will need to be corrected for the 15% tax paid by the super fund (85% x $25,000 = $21,250). Jerry’s adjusted TSB at the end of 30 June 2026 is calculated as follows:
TSB at 30 June 2026 – $5,300,000
Less concessional contributions – $21,250
Less downsizer contributions – $300,000
Equals: Adjusted TSB at the end of 30 June 2026 – $4,978,750
Under Div 296, the super earnings for the 2025-26 year will be calculated as follows:
Adjusted TSB at the end of 30 June 2026 – $4,978,750
Less TSB at the end of 30 June 2025 – $4,500,000
Equals: Basic super earnings – $478,750
It should be noted that the basic superannuation earnings can be further reduced by an unapplied transferrable negative superannuation earnings (ie where the TSB in the previous year exceeds the TSB in the current year), which does not occur in this example.
Since Jerry’s adjusted TSB at the end of 30 June 2026 is more than $3m and his super earnings for the 2025-26 year is greater than nil, Jerry will be liable to the Div 296 tax. Firstly, the percentage of TSB over $3m will need to be worked out using the TSB at 30 June 2026: ($5.3m – $3m)/$5.3m = 43.40%.
The Div 296 tax that Jerry will be personally liable to for the 2025-26 year will be $31,167 (ie $478,750 x 43.40% x 15%). This Div 296 tax amount will generally be due 84 days after the Commissioner gives an individual a notice of assessment for the tax. Individuals will have the option of paying this tax liability by either releasing amounts from one or more of their super interests or by paying the liability using other means.
According to the government, this change is expected to affect only 80,000 individuals or approximately 0.5% of Australians with a super account. It will also be consistent with the previously proposed objective of super to “preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
