Super to maintain mantle as ‘preferred’ investment vehicle: KPMG

What is important to note, amid all the noise, is that the additional so-called “Division 296 tax” of 15 per cent does not apply to all earnings on a member’s balance above $3 million. This seems to be a common misconception.

Rather, the first step will be to determine the “basis earnings”. This is fundamentally the annual movement across all of a member’s superannuation accounts (total super balance) over the financial year after considering specific adjustments.

This earnings figure is then proportioned based on the excess of a member’s total super balance that is over the $3 million threshold. The additional 15 per cent tax is then applied to this amount.

There are several key points to note:

• The changes are applicable from the 2025-26 financial year onwards.
• Add backs include benefit payments, transfer of benefits (spousal contribution splitting), family payment and request release authorities (excludes first home super saver). Subtractions include contributions, receipt of family law splits and insurance proceeds.
• Additional tax payable of up to 15 per cent (referred to as Division 296 tax) on the proportioned earnings (as per above).
• The tax is imposed on the individual to pay direct or release from a superannuation account. Tax liability on defined benefit interests is to be deferred.
• Negative superannuation earnings from balances above $3 million will be carried forward and used to reduce the amount of superannuation earnings subject to a Division 296 tax in future income years. Referred to as “transferable negative superannuation earnings”.

A worked example is useful here.

Sally has a total super balance (TSB) of $4 million on 30 June 2026, and a TSB of $6 million on 30 June 2027. In the previous financial year, her member account balance had gone down by $500,000 due to investment losses.

During the year, the fund paid $400,000 in lump-sum payments to Sally and received a downsizer contribution of $300,000.

Her “adjusted TSB” for the year ended June 30, 2027 is $6.1 million ($6 million + $400,000 - $300,000).

Basic super earnings:

• Adjusted TSB at end of current year $6.1 million – TSB end of previous year ($4 million) = $2.1 million.
• Prior year basic super earnings are $500,000 (unapplied transferrable negative super earnings).
• Adjusted basic super earnings = $2.1 million - $500,000 = $1.6 million.

As Sally’s TSB at the end of the year is greater than the threshold of $3 million and her superannuation earnings for 2026-27 are greater than nil, she will have taxable superannuation earnings.

The percentage of Sally’s taxable super earnings above the $3 million threshold will be $6 million - $3 million ÷ $6 million = 50 per cent.

Her taxable super earnings for the purposes of Division 296 (additional tax) will be $800,000 (50 per cent x $1.6 million). The total tax on Sally’s investment earnings for the year will therefore be $120,000 ($800,000 x 15 per cent), plus the ordinary tax paid on investment earnings by Sally’s superannuation fund itself.

Sally’s effective tax rate on adjusted basic super earnings of $1.6 million will be 7.5 per cent ($120,000 ÷ $1.6 million).

Of course, each situation will be different. But the key point to remember is that the additional Division 296 tax does not apply to all the earnings derived on a member’s balance over $3 million.

As this example shows, the extra tax is clearly an issue for impacted individuals, but perhaps not the game-changer requiring wholesale revision of their financial arrangements you might be forgiven for assuming from some commentary.

Julie Dolan is the head of SMSFs and estate planning at KPMG Enterprise.