The draft legislation for the new Div 296 tax which taxes proportion of earnings above $3m in Super was referred to the Economic Legislation Committee for analysis and reporting by 10 May 2024. See this article for our previous overview: Div 296 Explainer.
The Committee came back mid-May and recommended that the legislation be passed without amendment. This was much to the industry’s disappointment given the key controversial aspects to it, such as including unrealised gains in the earnings calculations and no indexation of the $3m limit.
There are a few senators that are not content with the measure in its current form so given the government needs to pass the legislation through both houses of parliament, there is still some chance of amendments being made, although the expectation is it will pass as it currently stands. Next time the legislation will get debated in parliament is mid-August.
Furthermore, to add to the planning uncertainty, the Coalition has stated that if they win the next election (due by May 2025), they will scrap the tax and not implement it.
Whilst the above plays out, we thought we would look at how the current calculation works and compare an opportunity to reduce the tax in one scenario, whilst highlighting other considerations around that.
There are 3 parts to the calculation:
(TSB = Total Superannuation Balance)
- Earnings = (TSB current financial year less TSB previous financial year + Withdrawals – Net Contributions)
- Proportion of earnings above $3Million = (TSB current financial year less $3million / TSB)
- Tax liability = (15 per cent x Earnings x Proportion of Earnings)
Examples
Our previous article (Div 296 Explainer) used the example of Danieland a set of circumstances that resulted in a Division 296 tax liability of $9,472.50 for 30 June 2026.
For comparison, let’s look at someone with the same figures & balances, but the following differences:
- They are 65 and able to withdraw money out of super
- They have little income in their own personal name
- Just before 30 June 2026, they makes a withdrawal of $600,000 cash out of super to their own personal name leaving the total Super Balance at $3.2 Million at 30 June 2026 (same as 30 June 2025)
| What | Daniel | Member aged >65 |
| Opening TSB | 3,200,000 | 3,200,000 |
| Earnings (Closing TSB – Opening TSB – Contribution + Withdrawals) | 300,000 | 300,000 |
| Closing TSB | 3,800,000 | 3,200,000 |
| Proportion of earnings >$3m | 21.05% | 6.25% |
| Tax liability (Earnings x Proportion x 15%) | 9,472.50 | 2,812.50 |
By withdrawing $600,000 just before year end:
- The earning amount of $300,000 stayed the same as previous
- But the proportion of earnings above $3Million reduced from 21.05% to 6.25% resulting in the tax liability reducing by $6,660 (from $9,472.50 to $2,812.50)
Any income generated by the $600,000 withdrawal will be taxable to the member in the future at their personal marginal rate, which will include any realised capital gains. Furthermore, withdrawing additional funds can impact estate and succession planning, so needs to be considered in light of that too.
Finally, it is important to understand that advice specific and appropriate to your circumstances should be sought before undertaking any superannuation pension or contribution strategies.
