Division 296 (Unrealised Earnings Tax) Update

Article written by LGT Crestone National Wealth Planner Matthew Nicolas.

The Better Targeted Superannuation Concessions Bill which contains the Division 296 proposal to tax unrealised earnings within superannuation from 1 July 2025 has stalled in the Senate.

The Bill will be reconsidered in February 2025 when the Senate sits again. However, with an election on the horizon, the Bill may become an election issue and could pass if Labor is re-elected.

Key concerns raised about the Bill include:

• Taxation of unrealised earnings,
• Lack of indexation on the $3 million cap, 
• Treatment of Government and Judges pension schemes, and
• Unfair impact on illiquid asset holders such as farmers. 

What’s next

The Bill has not been defeated but delayed. We advise clients to stay informed on the progression of this Bill and further updates on its status will be provided. 

Summary of Division 296

The key measures of this proposed tax are summarised below:

• Additional 15% tax rate: Individuals with total superannuation balances (being the combined value across all superannuation accounts, whether in accumulation and pension phase) exceeding $3 million on 30 June 2026 will face an additional tax of 15% on earnings.  
• Earnings: Earnings include the unrealised capital growth and income incurred by a member at each 30 June.
• Non-Indexed threshold: The $3 million threshold is unindexed. 
• Per person limit: The tax applies per individual, not per fund or couple. For instance, an SMSF with two members could have up to $6 million ($3 million per member) without being impacted. 
• ATO calculation: The ATO calculates and assesses the additional tax once an SMSF has lodged its tax return, starting with the FY2026 return.  
• Payment options: The additional tax is levied directly to the individual. However, an election can be made to pay the amount via superannuation within 84 days. This is similar to the existing Division 293 tax provisions. 
• Existing tax treatment: Ordinary tax rates and treatment within an SMSF remain unchanged. That is income within the fund will continue to be taxed at 15% and capital gains at 10% (asset held greater than 12 months). The normal provision of tax deductions and offsets i.e. franking credit offsets remain unchanged.  
• Tax-free pensions: Account based pensions in place (under the relevant cap at the time) will remain tax-free within the fund.
• Defined benefit and Judges pensions: The value of the pension and defined benefit scheme (family law value) will form part of an individual’s total superannuation balance for Division 296 purposes. There is an excluded earnings measure in place for Judicial pension schemes. 

Specialist advice

Please contact your Investment Advisor should you wish to speak with a member of our Wealth Planning team who will be able to provide expert insight into Division 296 and provide tailored guidance on your personal circumstances. 

IMPORTANT NOTE

This document has been prepared by LGT Crestone Wealth Management Limited (ABN 50 005 311 937, AFS Licence No. 231127) (LGT Crestone Wealth Management). The information contained in this document is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence a person in making a decision in relation to any financial product. To the extent that advice is provided in this document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of a financial product, you should obtain and consider a Product Disclosure Statement (PDS) or other disclosure document relating to the financial product before making any decision about whether to acquire it.

Although the information and opinions contained in this document are based on sources we believe to be reliable, to the extent permitted by law, LGT Crestone Wealth Management and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances.

LGT Crestone Wealth Management, its associated entities, and any of its or their officers, employees and agents (LGT Crestone Group) may receive commissions and distribution fees relating to any financial products referred to in this document. The LGT Crestone Group may also hold, or have held, interests in any such financial products and may at any time make purchases or sales in them as principal or agent. The LGT Crestone Group may have, or may have had in the past, a relationship with the issuers of financial products referred to in this document. To the extent possible, the LGT Crestone Group accepts no liability for any loss or damage relating to any use or reliance on the information in this document.

This document has been authorised for distribution in Australia only. It is intended for the use of LGT Crestone Wealth Management clients and may not be distributed or reproduced without consent. © LGT Crestone Wealth Management Limited 2024.