Tax on unrealised super fund earnings
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 superannuation balances. Draft legislation has now been released for consultation detailing the mechanics of the proposal to impose a tax of 15% on certain unrealised earnings based on the percentage of total super balance exceeding $3 million via the introduction of a new Div 296 of the Income Tax Assessment Act 1997 (Cth) (Div 296 tax).
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Proposed changes to tax unrealised super fund earnings
Currently, earnings on superannuation balances are taxed at 15% regardless of the total balance of superannuation an individual has and is paid by the fund.
The changes proposed will mean those individuals with superannuation balances above $3 million will be taxed an additional 15%, imposed directly on the individual, on top of the 15% already paid through the fund (therefore, up to 30% maximum in total), on a percentage of earnings above the $3 million threshold from the 2025-26 income year.
The tax treatment of individuals with a total superannuation balance below $3 million will not change and they will continue to be taxed at the 15% rate through the fund.
Balances of all Australian superannuation accounts will be included for the purposes of calculating an individual’s total superannuation balance and earnings, including APRA-regulated funds, SMSFs, and exempt public sector schemes.
How will this work? An example
Jerry has $2 million in his SMSF and $2.5 million in an APRA fund on 30 June 2025.
This grows to $2.5 million and $2.8 million respectively, by 30 June 2026.
Therefore, Jerry’s total superannuation 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.
Jerry 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 adjusted for the 15% tax paid by the fund (85% x $25,000 = $21,250).
Jerry’s adjusted TSB at 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 30 June 2026: $4,978,750
Under proposed Div 296, the super earnings for the 2025-26 year will be calculated as follows: Adjusted TSB at 30 June 2026: $4,978,750
Less TSB at 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 unapplied transferrable negative superannuation earnings (i.e. 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 30 June 2026 is more than $3 million and his super earnings for the 2025-26 year are greater than zero, Jerry will be liable to Div 296 tax.
Firstly, the percentage of TSB over $3 million 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 for in respect of the 2025-26 year will be $31,167 (i.e. $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.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.