With the Labor Party’s win at the recent federal election, there’s been growing speculation in the media that the Albanese government will re-introduce and seek passage of the “Division 296 Bill”[1] into law soon.
Broadly speaking, the proposed Division 296 would:
- apply from the 2025-26 income year onwards[2];
- impose a 15% tax on a percentage of “taxable superannuation earnings”[3] equal to the percentage of an individual’s total superannuation balance (TSB) that exceeds $3 million at the end of an income year[4];
- in the basic case, “superannuation earnings” for a current income year are calculated as the increase in their TSB in the prior income year to their “adjusted TSB” for the current income year[5];
- a member’s “adjusted TSB” for an income year considers an individual’s superannuation withdrawals and contributions for that year, subject to a number of adjustments[6]; and
- if an individual’s “superannuation earnings” in an income year are less than nil (i.e. the adjusted TSB is less than the prior year’s TSB) and the individual’s TSB at the end or at the start of the income year is greater than $3 million, then the individual has “transferable negative superannuation earnings” that can be used to reduce the amount of their “superannuation earnings” in a later income year[7].
Reading the ‘tea leaves’
There has been speculation about whether there will be any changes to the proposed Division 296 (for example, that it shouldn’t tax unrealised capital gains) to secure its passage through this upcoming Parliament.
The recent results of the federal election of the Senate[8] mean the Australian Greens now hold the balance of power. This means that the Albanese government is able to pass bills through the Senate solely with the support of the Greens.
While we’re not in the habit of reading the “tea leaves”, we do make the following observations.
On 7 December 2023, the Division 296 Bill was referred to the Senate Economic Legislation Committee for inquiry and report, which was handed down on 10 May 2024[9] (the Report).
In the Report, the Australian Greens issued a Dissenting Report[10], which contained several recommendations suggesting that, if the Government were to agree to them, it may secure the Green’s support for the Division 296 Bill. These recommendations are:
- to lower the threshold of $3 million to $2 million and for the threshold to be indexed to inflation;
- for the Government to prepare “comprehensive legislation… for removing and reducing all the tax settings that disproportionately benefit the highest income earners and asset owners”;
- the Government ensuring “the actuarial formula does not result in women being taxed higher than men as a result of their longer life expectancy”; and
- the Government “addresses the concerns regarding the exemption on the prohibition for super funds to borrow to finance investments in section 67A of the Superannuation Industry (Supervision) Act 1992 on a prospective basis.”
Based on the Greens’ Dissenting Report, it seems they aren’t concerned with the Division 296 tax being levied on “unrealised capital gains” above the $3 million threshold.
If the Greens’ recommendations are anything to go by, it will be interesting to see what amendments may be made to the Bill to secure the Greens’ support, particularly around whether superannuation funds’ ability to borrow to finance investments will be impacted and whether the Albanese government would consider further superannuation reforms and around the threshold.
Strategies and timing considerations for Division 296
While the proposed Division 296 has an effective start date of 1 July 2025, the 15% tax on ‘superannuation earnings’ would only apply if your TSB at the end of the year, i.e. 30 June 2026, exceeds the $3 million threshold.
So, assuming the proposed Division 296, as drafted, becomes law, there’s still time to plan.
There are several strategies to minimise the impact of Division 296 as it currently stands for anyone who already has a TSB over $3 million, or who may, in the foreseeable future, see their TSBs exceed that threshold.
If you’re unable to satisfy a condition of release, the main issue may be liquidity, i.e. being unable to fund a Division 296 liability due to the ‘increase’ in the adjusted TSB from unrealised capital gains. In this case, you could consider changing the investment mix of assets in the fund to assets that primarily generate income as opposed to capital growth.
If you’re able to satisfy a condition of release, then you could consider making a withdrawal of your superannuation to bring your TSB at or below the $3 million mark at the end of the income year.
However, any income derived from investments made with those withdrawn funds will be taxable in a non-super environment. You would need to consider the investment structure(s) (companies or family trusts, for instance) that the funds will be invested through and their tax implications. That said, a priority would be to consider withdrawing assets that have unrealised capital gains out of superannuation, to avoid future unrealised capital gains from being taxed on an ‘accruals’ basis (which is what Division 296 is designed to achieve).
Do I need to act now?
Not immediately – Division 296 is not yet law. The Bill is expected to be reintroduced in the upcoming Parliament from 22 July 2025, and it’s possible that further amendments may be made (depending on how the Albanese government is able to negotiate passage through the Senate) before it becomes legislation. However, given the potential financial impact for those affected, it’s worth considering whether early planning is appropriate for your circumstances.
Please note this article is not the provision of financial advice. It’s general advice only, of a tax and legal nature, and doesn’t consider your individual circumstances.
We’ll continue to monitor developments and provide updates as the legislation progresses. If you would like to discuss how the proposed Division 296 may affect your superannuation, please contact Coleman Greig’s Tax and Superannuation Team.
[1] Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (the Measures Bill) and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (the Imposition Bill).
[2] See proposed section 296-10 under Schedule 1 of the Measures Bill.
[3] See the Imposition Bill.
[4] See proposed section 296-35 under Schedule 1 of the Measures Bill.
[5] See proposed section 296-40 under Schedule 1 of the Measures Bill.
[6] See proposed section 296-45 under Schedule 1 of the Measures Bill.
[7] See proposed Subdivision 296-C under Schedule 1 of the Measures Bill.
[8] https://www.abc.net.au/news/elections/federal/2025/results/senate.
[9] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/TLABBetterSuper2024/Report.
[10] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/TLABBetterSuper2024/Report/Australian_Greens_Dissenting_Report.
