by Matt Manning, Technical Consultant, BT
The Federal Government has proposed to reduce the super tax concessions for those with total super balances that exceed $3 million. The new tax on super, Division 296 (D296) of the Income Tax Assessment Act 1997, is proposed to apply to the 2025/26 financial year and beyond.
While advisers have ample time to plan for the anticipated changes, many are getting on the front foot and working out which clients might be affected, and how much additional tax each one would have to pay. This article briefly describes the operation and features of the proposed Division 296 tax (D296), then outlines in detail how to calculate the tax liability via case studies.
Details on the new tax
Legislation implementing D296, called Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, was introduced into Parliament on 30 November 2023. At time of writing the bill has not passed through the lower house.
When the bill does become law, from 1 July 2025, affected clients will pay an additional 15% in tax on earnings corresponding to the portion of their super balance above $3 million.
D296 is proposed to apply to clients whose total super balance (TSB) exceeds the D296 threshold of $3m (unindexed) and where there has been an increase in their TSB between June 30 of the relevant financial year and their TSB as at 30 June of the previous financial year (adjusted for withdrawals and contributions).
This change in adjusted TSBs is termed ‘taxable super earnings’ (TSE) and includes unrealised capital gains.
The 15% D296 tax rate will apply to the percentage of a client’s TSB that exceed $3m and is separate from and in addition to the 15% tax rate that applies to most earnings generated in the accumulation phase of super.
D296 tax will be levied on the client as an individual who will have a choice to either pay the liability personally or have the liability paid from their super fund via a release authority.
There are three exemptions from D296:
- those who pass away are not subject to D296 tax for the financial year of death;
- those who have ever made a personal injury contribution;1 and
- child death benefit pensions, for as long as the pensions exist.
Also, while technically not an exemption category, constitutionally protected schemes and judges’ pensions will be exempt from D296. However, as TSBs from such schemes are included in the client’s D296 calculation, the client’s other super may be subject to D296.
Examples of D296 calculations are below. It is important to note that as this article is based on draft legislation, the examples set out below might change, depending on the final legislation.
1 As per Income Tax Assessment 1997 Act, s292-95
Division 296 calculations
A client’s D296 liability for the 2025/26 financial year is determined by the following (up to) five-step process:
Step 1 – Determine if relevant.
The first step is to determine whether D296 is relevant. There are three possible scenarios:
Scenario 1
Step 1
Is the client’s TSB as at 30 June 2026 greater than $3m, and their TSB as at 30 June 2026, plus 2025/26 withdrawals, minus 2025/26 contributions, minus their TSB as at 30 June 2025 greater than $0?
If yes, the client will be subject to D296 for 2025/26, and there are a further four steps to determine their D296 liability.
Step 2 - Calculate TSE for 2025/26.
For scenario 1, this formula will always result in positive 2025/26 TSE; i.e. more than $0.
- TSB as at 30 June 2026, plus
- 2025/26 withdrawals, minus
- 2025/26 contributions, minus
- the greater of their TSB as at 30 June 2025 and $3m
Step 3 - Reduce positive TSE for 2025/26 by carried forward negative TSE from previous financial years.
For 2025/26 the result of step 3 will always be the same as the result of step 2.
This is because a client cannot accrue a TSE loss prior to 2025/26.
Step 4 – Calculate the percentage of TSE subject to D296.
[(TSB as at 30 June 2026, minus $3m) ÷ TSB as at 30 June 2026]
Note that, unlike step 2, in step 4 the $3m D296 threshold is always used.
Step 5 – Calculate D296 tax liability.
15% x result of step 3 x result of step 4
Scenario 2
Step 1
If scenario 1 does not apply, is the client’s TSB as at 30 June 2025 >$3m and their TSB as at 30 June 2026, plus 2025/26 withdrawals, minus 2025/26 contribution, minus their TSB as at 30 June 2025 less than $0?
If yes, there is no D296 liability for 2025/26, however the client will have a TSE loss they can carry forward to future financial years. Determining this carried forward TSE loss requires 1 further step.
Step 2 – Calculate TSE for 2025/26
For scenario 2, this formula will always result in negative 2025/26 TSE i.e. less than $0.
The client’s 2025/26 negative TSE is:
- the greater of their TSB as at 30 June 2026, and $3m, plus
- their 2025/26 withdrawals from super (including pension payments and lump sum withdrawals), minus
- their 2025/26 contributions to super (net of contributions tax), minus
- their TSB as at 30 June 2025.
A client’s negative TSE is the amount they can be carried forward to offset positive TSE in future financial years.
Steps 3-5 are not required.
Scenario 3
If neither scenario 1 or scenario 2 applies, D296 is not relevant for 2025/26, and steps 2-5 are not required.
Case study 1 – very high super balance – positive TSE
Adam is age 50 and his entire super is in the accumulation phase.
Adam’s TSB as at 30 June 2026 is $12m and his TSB as at 30 June 2025 is $11.5m.
During 2025/26, Adam does not receive any withdrawal and makes total concessional contributions of $20,000 (prior to deducting contributions tax).
Step 1 – Is Adam subject to D296 during 2025/26?
Yes. Adam’s TSB as 30 June 2026 >$3m and his TSB as at 30 June 2026, plus his 2025/26 withdrawals, minus his 2025/26 contributions, minus his TSB as at 30 June 2025 is greater than $0.
Therefore scenario 1 applies.
Step 2 – Calculate Adam’s TSE for 2025/26.
$12,000,000 + $0 - $17,000* - $11,500,000# = $483,000
* Contributions for D296 purpose are net of the standard 15% contributions tax. Therefore [$20,000 total concessional minus ($20,000 total concessional contributions x 15%)] = $17,000
# In Adam’s situation, $11.5m is the greater of his $11.5m TSB as at 30 June 2025, and the $3m D296 threshold.
Step 3 – Reduce Adam’s positive TSE for 2025/26 by his carried forward negative TSE from previous financial years.
The result remains the $483,000 from step 2, as TSE losses cannot be accrued prior to 2025/26.
Step 4 – Calculate the percentage of Adam’s TSE subject to D296.
($12,000,000 - $3,000,000) ÷ $12,000,000 = 75%
Step 5 – Calculate Adam’s D296 tax liability.
15% x $483,000 x 75% = $54,337.50
Case study 2 – super balance only slightly above $3m threshold – positive TSE
Betty is age 70 and has super in both the accumulation phase and pension phase.
Betty’s TSB as at 30 June 2026 is $4m (consisting of $1.5m pension phase and $2.5m accumulation phase), and her TSB as at 30 June 2025 is $3,667,000 (consisting of $1.5m pension phase and $2,167,000 accumulation phase)
During 2025/26, Betty receives total withdrawals of $150,000 and does not make any contributions.
Step 1 – Is Betty subject to D296 during 2025/26?
Yes. Betty’s TSB as 30 June 2026 >$3m and her TSB as at 30 June 2026, plus her 2025/26 withdrawals, minus her 2025/26 contributions, minus her TSB as at 30 June 2025 is greater than $0.
Therefore scenario 1 applies.
Step 2 – Calculate Betty’s TSE for 2025/26
$4,000,000 + $150,000 - $0 - $3,667,000# = $483,000
Step 3 – Reduce Betty’s positive TSE for 2025/26 by her carried forward negative TSE from previous financial years.
Result remains the $483,000 from step 2, as TSE losses cannot be accrued prior to 2025/26.
Step 4 – Calculate the percentage of Betty’s TSE subject to D296.
($4,000,000 - $3,000,000) ÷ $4,000,000 = 25.00%
Step 5 – Calculate Betty’s D296 tax liability.
15% x $483,000 x 25% = $18,112.50
# In Betty’s situation, $3,667,000 is the greater of her $3,667,000 TSB as at 30 June 2025, and the $3m D296 threshold.
Adviser point
Despite Adam (case study 1) and Betty (case study 2) having the same 2025/26 TSE of $483,000, Adam’s D296 liability is three times higher than Betty’s. This is because the percentage of Adam’s TSE subject to D296 is three times that of Betty’s.
This illustrates that assuming everything else is equal, the more funds a client has in super, the higher their D296 liability, as a higher portion of their TSE relates to their TSB amount above the $3m D296 threshold.
These case studies also illustrate that a client’s age and whether/how much of their super they have in pension phase vs. accumulation phase does not impact the D296 calculation. Also, while withdrawals and contributions are included in the TSE calculation, they are not relevant when determining the percentage of a client’s TSE subject to D296.
Case study 3 – TSE takes the balance above $3m D296 threshold
Cameron is age 55 and his entire super is in the accumulation phase.
Cameron’s TSB as at 30 June 2026 is $3.1m and his TSB as at 30 June 2025 is $2.1m.
During 2025/26, Cameron does not receive any withdrawals from or make any contributions to his super.
Step 1 – Is Cameron subject to D296 during 2025/26?
Yes. Cameron’s TSB as 30 June 2026 >$3m and his TSB as at 30 June 2026, plus his 2025/26 withdrawals, minus his 2025/26 contributions, minus his TSB as at 30 June 2025 is greater than $0.
Therefore scenario 1 applies.
Step 2 – Calculate Cameron’s TSE for 2025/26
$3,100,000 + $0 - $0 - $3,000,000# = $100,000
Step 3 – Reduce Cameron’s positive TSE for 2025/26 by his carried forward negative TSE from previous financial years.
Result remains the $100,000 from step 2, as TSE losses cannot be accrued prior to 2025/26.
Step 4 – Calculate the percentage of Cameron’s TSE subject to D296.
($3,100,000 - $3,000,000) ÷ $3,100,000 = 3.23% (rounded to two decimal places)
Step 5 – Calculate Cameron’s D296 tax liability.
15% x $100,000 x 3.23% = $484.50
# In Cameron’s situation, $3m is the greater of his $2,100,00 TSB as at 30 June 2025, and the $3m D296 threshold.
Adviser point
Despite the large increase in Cameron’s TSB between 30 June 2025 and 30 June 2026, his D296 liability is minimal. This is because a client’s TSE does not include the increase in their adjusted TSB that is below the $3m threshold.
This also illustrates that there is minimal benefit in a client’s TSB being slightly below (compared to slightly exceeding) the $3m threshold.
Case study 4 – negative TSE, no D296 liability
Debra is age 70 and her entire super is in pension phase.
Debra’s TSB as at 30 June 2026 is $3.2m and her TSB as at 30 June 2025 is $3.5m
During 2025/26, Betty receives total withdrawals of $200,000 and does not make any contributions.
Step 1 – Is Debra subject to D296 during 2025/26?
No. Debra’s TSB as at 30 June 2026, plus her 2025/26 withdrawals, minus her 2025/26 contributions, minus her TSB as at 30 June 2025 is $0 or less.
However, as Debra’s TSB as at 30 June 2025 is >$3m, scenario 2 applies and she will have a TSE loss to carry forward to offset any positive TSE in a future financial year.
Step 2 – Calculate Debrah’s TSE for 2025/26
$3,200,000# + $200,000 - $0* - $3,500,000 = -$100,000
Steps 3-5 are not required for Debra. She has a 2025/26 TSE loss of $100,000 that she can carry forward to offset positive TSE in future financial years.
# In Debra’s situation, $3.2m is the greater of her $3.2m TSB as at 30 June 2026, and the $3m D296 threshold.
What’s next
It is early days still and it is expected to take several months for the relevant bill to become law.
While the actual rate will significantly vary, for funds in accumulation phase D296 will not increase the effective tax on earnings rate to 30%. As shown in case study 2, only 25% of the client’s TSE was subject to the 15% D296 rate, and even case study 1 (which involved an extremely high super balance) the 15% D296 rate applied to 75% of the client’s TSE.
Some details which potentially may be worked out as the legislation makes its way through Parliament include:
- Liquidity issues - Unlike the standard tax on investment earnings, D296 is also imposed on unrealised capital gains. This could cause liquidity issues, particularly for those clients whose wealth consists almost solely of illiquid assets such as property. Under the draft bill, clients who do not pay their D296 liability will accrue a D296 debt and be charged interest at a reduced rate of general interest charge (currently this would equate to 7.34%). Multiple years of D296 liability and compounding interest may over time effectively result in clients with self-managed super funds taking the extreme action of selling the fund’s main asset to meet their D296 obligation.
- $3m threshold is not indexed - D296 is initially predicted to impact a small number of Australians with very high super balances (approximately 80,000).2 If this threshold remains unindexed, over time this number will likely significantly increase as investment balances increase. Also, for members of a couple, upon death of the first spouse, the surviving spouse may find themselves subject to D296 if they receive their late spouse’s death benefit as a pension.
- Ability to withdraw - Clients who satisfy a condition of release such as retirement may choose to withdraw part of their super to remain within the $3m threshold, however this option is not available to those who do not satisfy a condition of release.
- Negative super earnings - Negative TSE can only be carried forward to future financial years. This could result in clients paying significant D296 tax on unrealised capital gains, only to then see the value of these assets significantly fall (even to a loss position) and not have the ability to ‘claw back’ the D296 tax previous paid on unrealised gains.
It will take some time for such details to be addressed by Parliament, however, it’s not too early for advisers to discuss the potential changes with clients and plan to adjust their super and tax strategies accordingly.
2 Exposure Draft Explanatory Materials, Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023, House or Representatives: https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
This article was originally published in SMS magazine. The article has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian Credit Licence 233714. It has been prepared for the information of licensees and financial advisers only. The information contained in this article provides an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The article does not contain, and should not be taken to contain, any financial product advice, and has been prepared without taking into account any personal objectives, financial situation or needs, and you should consider its appropriateness with regard to these factors before acting on it.
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This document has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac), and is current as at 14 June 2024. Material contained in this document is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. The information in this document regarding legislative changes is intended as a guide only. It is not exhaustive and does not constitute legal advice. It is based on our interpretation of the law currently in force on the date of this notification and does not undertake to provide any updates to the extent that any of the laws or regulations referred to change in the future. Consequently, it should not be relied upon as a complete statement of the relevant laws, the application of which may vary, depending on your particular circumstances. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. Any case studies and examples used in this document are purely for illustration only.