{"id":104401,"date":"2025-06-20T16:26:00","date_gmt":"2025-06-20T06:26:00","guid":{"rendered":"https:\/\/en.econostrum.info\/au\/?p=104401"},"modified":"2025-06-20T16:23:56","modified_gmt":"2025-06-20T06:23:56","slug":"super-insurance-payouts-new-tax-division-296","status":"publish","type":"post","link":"https:\/\/en.econostrum.info\/au\/super-insurance-payouts-new-tax-division-296\/","title":{"rendered":"How Super Insurance Payouts Could Trigger a New Tax Under Division 296"},"content":{"rendered":"\n<p>Australia\u2019s upcoming <strong>Division 296 tax<\/strong> reform will affect more than just high-income earners. While life insurance payouts for death, total and permanent disablement (<a href=\"https:\/\/moneysmart.gov.au\/how-life-insurance-works\/total-and-permanent-disability-tpd-insurance\" target=\"_blank\" rel=\"noopener\">TPD<\/a>) or terminal illness remain excluded from annual superannuation earnings, they will still be counted toward the <strong>$3 million <\/strong>superannuation threshold used to calculate the new tax.<\/p>\n\n\n\n<p>This means that individuals who received insurance payouts inside<strong> superannuation<\/strong>, even many years ago, may find themselves subject to additional tax despite no further income or asset growth outside of their fund. The Australian Taxation Office (<a href=\"https:\/\/www.ato.gov.au\/\" target=\"_blank\" rel=\"noopener\">ATO<\/a>) will apply this rule regardless of the individual\u2019s circumstances at the time of receiving the payout.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Past Payouts From Insurance Increase Today\u2019s Super Balance<\/strong><\/h2>\n\n\n\n<p>Life insurance payouts made in previous years\u2014for instance, as a result of retirement forced by illness\u2014are no longer distinguishable from the rest of a member\u2019s <strong><a href=\"https:\/\/en.econostrum.info\/au\/aussies-benefit-superannuation-rises\/\" data-type=\"post\" data-id=\"104025\">superannuation<\/a> balance<\/strong>, according to<a href=\"https:\/\/www.smsfassociation.com\/specialist\/david-busoli\" target=\"_blank\" rel=\"noopener\"> David Busoli<\/a>, principal at SMSF Alliance. As a result, they now contribute to the <strong>Division 296 cap<\/strong>.<\/p>\n\n\n\n<p>While TPD benefits are excluded from taxable earnings in the year they are received, they form part of the <strong>total super balance<\/strong> thereafter.<\/p>\n\n\n\n<p>For example, a $4 million payout received 10 years ago, now grown to $6 million, would leave the member $3 million above the tax threshold and subject to <strong>Division 296 calculations<\/strong>, even though the original source of the funds was an insurance payout rather than investment returns or salary sacrifice contributions.<\/p>\n\n\n\n<p>The only exception is when the payment qualifies as a <strong>structured settlement<\/strong> for personal injury compensation. Structured settlements are exempt from Division 296 calculations entirely, provided strict conditions and timely ATO notifications are met.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter\"><div class=\"wp-block-embed__wrapper\">\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\"><p lang=\"en\" dir=\"ltr\">Whether you\u2019re crunching numbers, fighting crime or fixing cars \u2013 our occupation guides can help you learn which: <br><br>\u2705 deductions you can claim<br>\u2705 income you must declare<br>\u2705 records you need to keep. <br><br>Find yours @ <a href=\"https:\/\/t.co\/nIpiA8j0D8\">https:\/\/t.co\/nIpiA8j0D8<\/a> <a href=\"https:\/\/t.co\/gSysFlWGat\">pic.twitter.com\/gSysFlWGat<\/a><\/p>&mdash; ato.gov.au (@ato_gov_au) <a href=\"https:\/\/twitter.com\/ato_gov_au\/status\/1935520797361324383?ref_src=twsrc%5Etfw\" target=\"_blank\" rel=\"noopener\">June 19, 2025<\/a><\/blockquote><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Tax Calculations May Still Penalise Despite Exclusions<\/strong><\/h2>\n\n\n\n<p>Although insurance proceeds are excluded from the earnings formula, their inclusion in the <strong>year-end super balance<\/strong> affects the proportion of income taxed. Busoli illustrates this with an example where a member ends the year with a $4.2 million balance, including a $1 million insurance payout.&nbsp;<\/p>\n\n\n\n<p>While only $200,000 would count as earnings, the <strong>taxable portion<\/strong> of that income would be calculated as 28.6%, leading to a final tax bill of $8,571.<\/p>\n\n\n\n<p>In contrast, without the insurance payout, the same $200,000 gain would attract a lower taxable portion of 6.3%, resulting in a tax bill of just $1,875. According to Busoli, this demonstrates how insurance payouts, though not counted as earnings, increase <strong>tax liability<\/strong> by inflating the overall super balance.<\/p>\n\n\n\n<p>For members nearing or above the $3 million threshold, <strong>withdrawing part of the super balance<\/strong> to purchase non-super assets such as a home may be one option to remain below the taxable cap by the 30 June 2026 deadline.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A major tax shift is coming for Australians with large super balances\u2014and insurance payouts could unexpectedly tip the scale. While these payments aren&#8217;t counted as income, they may still inflate your balance enough to trigger Division 296 tax. If your super includes past life or disability insurance payouts, the rules could hit harder than expected.<\/p>\n","protected":false},"author":10,"featured_media":104404,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29],"tags":[],"class_list":["post-104401","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-taxation","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/104401","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/comments?post=104401"}],"version-history":[{"count":2,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/104401\/revisions"}],"predecessor-version":[{"id":104405,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/104401\/revisions\/104405"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/media\/104404"}],"wp:attachment":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/media?parent=104401"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/categories?post=104401"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/tags?post=104401"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}