There is considerable media attention and scrutiny surrounding the current $3 million super tax, also known as Division 296, which imposes an additional tax on superannuation balances exceeding $3 million.
As of June 5, 2025, the Australian government’s proposed Division 296 tax aimed at:
- Imposing an additional 15% tax on superannuation earnings for balances exceeding $3 million,
- Including unrealised capital gains,
is not yet law.
Although the legislation passed the House of Representatives in 2023, it stalled in the Senate in February 2025 and has not progressed since.
While this is a difficult situation, the alternatives to paying the additional 15% tax on super, compared to withdrawing all funds out of super in excess of $3m, and then that is taxed at normal marginal tax rates, is a comparison of a 30% tax rate in super (15% usual tax rate plus the extra 15%), compared to those in marginal tax rates at 45% + Medicare of 2%.
The company tax rate is also at 25% for base rate entities, or 30% for those that are not – which is likely to apply to those wanting a company to hold investments such as shares or property.
Despite the legislative delay, the government remains committed to implementing the tax from July 1, 2025. Treasurer Jim Chalmers has reaffirmed the government’s intention to proceed with the measure, and the Greens have indicated their support, which could potentially facilitate its passage through the Senate. (The Australian)
Key Features of the Proposed Division 296 Tax:
| Applicability: | Targets individuals with a total superannuation balance (TSB) exceeding $3 million at the end of a financial year. |
| Tax Rate: | An additional 15% tax on earnings corresponding to the proportion of the TSB above $3 million.(BT Australia) |
| Earnings Definition: | Includes both realised and unrealised gains, calculated based on the movement in the TSB over the financial year, adjusted for contributions and withdrawals. |
| Threshold Indexation: | The $3 million threshold is not indexed, meaning more individuals may be affected over time due to inflation. |
| Payment Mechanism: | Tax assessed to the individual, with the option to pay personally or via a release from superannuation funds. (DBA Lawyers) |
Controversies and Criticisms:
| Taxing Unrealised Gains: | Critics argue that taxing unrealised gains is unprecedented in Australia’s tax system and may lead to liquidity issues, especially for those with illiquid assets, such as property. |
| Lack of Indexation: | The non-indexed threshold could result in bracket creep, where inflation pushes more individuals above the $3 million cap over time. (The Australian) |
| Impact on Defined Benefit Schemes: | Concerns have been raised about the treatment of defined benefit pensions, with suggestions that some public servants and politicians may be exempt or subject to different rules. (The Australian) |
| Economic Implications: | Analysts warn of potential adverse effects on investment behaviour, with estimates of a $95 billion economic loss due to reduced capital investment. |
The Greens – Borrowing in Super:
The Greens have further also announced an attack on borrowing in super. Many clients have self-managed superannuation funds (SMSFs) that hold property against which they have borrowed. Those properties are often rented to their business, as the SMSF has enabled the client to secure their own business premises, eliminating the need to worry about landlords.
There is already rigid regulation for borrowing for superannuation funds, and many clients have sought to utilise the flexibility of their own Self-Managed Super Fund (SMSF) to gain more exposure to property, using lower loan-to-value ratios to do so.
Unfortunately, the Greens and Labor did not communicate in the recent Federal Election that a vote for Labor is a vote for the Greens, and a vote for the Greens is also a vote for Labor. The Greens also were not forthcoming with many of their policies at the time.
The Liberals — Their take on this:
The opposition is prepared to work with the government on superannuation reforms, but will not back a tax on unrealised capital gains.
The lack of indexation is also a problem that needs to be addressed before the opposition can support any of this proposed legislation. (SMS Magazine)
Current Status:
While the Division 296 tax has not yet been enacted, the government’s determination to implement it by July 1, 2025, suggests that affected individuals should prepare for its potential introduction.
Our concern is the uncertainty, and we are now in a state of limbo. Many clients hold property assets in their superannuation and cannot simply sell the property or other assets, which then forces the sale of assets at potentially lower prices in order to pay this tax.
In our view, the proposal is un-Australian. To be taxed on paper gains or losses, and being forced to sell property or other assets, which may not have ready markets.
We continue to monitor the situation and review superannuation balances for clients, and we are formulating strategies to mitigate potential tax liabilities.
