A new tax law could soon target Australians with superannuation balances exceeding $3 million. The proposed Division 296 tax aims to tax the excess earnings in these large superannuation accounts, signalling significant changes to the way high-income earners and retirees manage their retirement savings. If passed, this could reshape retirement planning for many Australians.
What is Division 296?
Division 296, part of an ongoing review of the superannuation system, introduces a 15% tax on the excess earnings of individuals whose total superannuation balance (TSB) exceeds $3 million by the end of the financial year. The tax will apply only to the growth in the superannuation balance beyond this threshold, including unrealised capital gains, making it a measure targeting wealthier Australians who have accumulated substantial funds through their superannuation.
While the law is still in the proposal stages, many are bracing for its impact. According to the Australian Tax Office (ATO), this measure is expected to affect approximately 77,400 people—roughly 1 in 200 Australians—with the vast majority being retirees or high-income professionals such as doctors and lawyers. For those impacted, this tax could add a significant financial burden, prompting a reevaluation of their superannuation strategies.
Who Will be Affected?
According to industry experts, retirees with large super balances, business owners, and long-term investors are most likely to feel the sting of Division 296. These groups often see their superannuation funds grow substantially over time, largely due to investments in property, shares, and other assets. As superannuation grows through capital appreciation and reinvested earnings, the $3 million threshold will catch more individuals, especially in years of strong market growth.
The tax will be calculated based on super earnings, which include both realised and unrealised gains in an individual’s super balance. For example, if a person’s balance exceeds $3 million and grows by $500,000 over the year, the tax will only apply to the proportion of that growth exceeding the $3 million threshold. This will likely affect individuals with high-value properties or complex portfolios, according to financial analysts.
Preparing for Change
While Division 296 has not yet been passed into law, it is crucial for Australians with high superannuation balances to start considering how this change could affect their retirement planning. Experts recommend reviewing superannuation strategies, such as limiting additional contributions or adjusting investment portfolios to better manage risk and return. Consulting with a financial advisor can also provide tailored advice on how to navigate the new tax landscape once legislation is finalised.
For many, the introduction of Division 296 is a reminder that wealth accumulation through superannuation comes with responsibility—and potentially new taxes—to secure the future. With the threshold set to remain static, younger Australians may be disproportionately affected by inflation, highlighting the importance of long-term financial planning in an ever-changing economic environment.
