Division 296 super tax explained (including calculator)

We know wading through the numbers alone isn’t everyone’s idea of a great time, so we’ve put together a simple calculator to estimate your Division 296 tax liability for 2025-26.

What if I have investment losses?

While there is no way to recoup tax that is paid on capital gains that are never realised, there is a mechanism to carry forward losses. When the result of the annual earnings calculation is negative, this loss is subtracted from earnings in future years.

In 2025-26 there are no prior losses to carry forward because the tax has not applied in previous years. However, if you experience a loss in 2025-26 it will be carried forward to offset gains in 2026-27. Any portion of the that was not used to offset gains is carried forward again into future years.

Collection of the tax

Those who have been liable for Division 293 tax in the past will be familiar with the assessment and payment process that is being proposed. The ATO will send assessments to affected individuals, who may then choose to release the tax from their super or pay the liability from their own resources outside super.

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In a small concession, the interest rate applied to late payments is four percentage points lower than the rate that applies to most other overdue tax payments.

The released explanatory material states that the lower interest rate should be closer to market rates and is intended to avoid penalising people in the “very rare circumstances” that they do not have available funds within or outside super with which to pay the tax liability. This could apply to those who have SMSFs that have most of their assets tied up in illiquid investments such as property.

Exemptions

People who have received a structured settlement contribution, who died before the last day of the income year, or who are child recipients of death benefit pensions are not subject to the Divison 296.

Earnings from constitutionally protected (untaxed) funds for State higher level office holders, along with earnings from the super of sitting Justices of the High Court appointed before 1 July 2025 and earnings from non-complying funds are exempt from tax. The balances of these accounts will however be included when assessing whether the $3 million cap has been reached, so tax can be applied to the earnings of other superannuation interests held by the same individual.

Future indexation

While the law does not mention indexation, it does introduce the term “large superannuation balance threshold” which is used throughout, instead of the figure of $3 million.

If a future government decides the threshold should be indexed or otherwise altered, this can be achieved simply by changing the amount of the “large superannuation balance threshold” defined in law.

The impact on retirees

Retirees can currently transfer up to $2 million (the transfer balance cap) from their accumulation accounts into retirement phase pension accounts. Investment earnings on retirement phase accounts are tax free and this will not change. However, the value of these accounts is included in your TSB and counts towards the $3 million threshold for calculation of Division 296 tax.

Retirees who have a total balance (including retirement phase interests and accumulation phase interests) above $3 million will therefore be affected by Division 296 tax in the same way as anyone else.

The legislation clarifies that a change to the definition of TSB is required that will have it capture the ‘withdrawal value’ of benefits. We will know more about this when regulations are finalised, but it will mean that non-account-based pensions (including defined benefit pensions) will need to be revalued annually.

The change is needed because the value of these pensions for TSB purposes is currently determined only when the pension commences and does not change. This renders the current TSB definition unsuitable for the purposes of Division 296, which requires that the annual change in value of accounts is known, to determine taxable earnings.

As the change in definition will apply across the board, not just to Division 296 tax, it will have broader consequences for other measures that refer to the TSB such as concessional contribution caps and eligibility to use carry-forward concessional contributions.