Proposed Div 296 regime: uncertainty remains (March 2025 Federal Budget Update)

Published on 26 March 2025 by Drew Pflaum
Categories: Government Budgets

While no new major super measures were announced in the Budget, the super industry has enough on its plate at the moment in terms of navigating the uncertainty surrounding the proposed Division 296 regime for superannuation account balances above $3 million from 1 July 2025.

Under proposed Division 296 of the Income Tax Assessment Act 1997, individuals with an adjusted total superannuation balance over $3 million at 30 June each year will be subject to an additional 15% tax on a percentage of earnings equal to the percentage of superannuation balances that exceeds $3 million (not indexed) for an income year. The Division 296 tax will apply from 2025–2026 and will be in addition to any tax their super funds pay on earnings in accumulation. As a result, earnings attributable to balances above $3 million will generally attract a combined headline rate of 30%.

The calculation of “earnings” also means that unrealised capital gains will be subject to the Division 296 tax. This is because “earnings” for Division 296 purposes will be a calculated estimate of earnings and not actual “realised” earnings.

Special rules for working out Div 296 tax will apply to individuals with defined benefit interests. For defined benefit interests, Division 296 tax will generally be deferred for payment until 21 days after the first benefit is paid from the interest.

The Bills containing the proposed regime are still before the Senate.

In a Senate Economics Legislation Committee report in May 2024, the Coalition and Greens Senators did not support the Bills in their current form. These Bills will lapse once the Prime Minister calls the Federal election, unless they are passed beforehand when Parliament resumes for the Budget sittings on 25–27 March. Therefore, the status of the proposed Div 296 regime may be subject to the outcome of the May election, if not passed before the calling of the election.

To date, the Australian Labor Party (ALP) has insisted on passing the Division 296 Bills in their current form and rejected concerns about the taxing of unrealised gains and the $3 million threshold not being indexed. If the ALP is returned to Government at the May election, it is likely that the Bills would be re-introduced, although the proposed 1 July 2025 start date may be delayed.