MGI has received numerous client inquiries who are concerned about the impact of this proposed law, so we have reached out to our trusted advisor Jaxon King, Managing Director at Scion Private Wealth for some guidance.

Understanding the Proposed Division 296 Superannuation Tax

The Australian Government is proposing a new tax measure, known as Division 296, which will be aimed at individuals with superannuation balances exceeding $3 million. Whilst this is not law yet and is still being debated in the Senate, it is set to commence on 1 July 2025. The tax introduces an additional levy of 15% on earnings associated with the portion of superannuation balances above the $3 million threshold. This is in addition to the existing 15% on super earnings, effectively doubling the tax rate to 30% for earnings attributable to the excess amount.

Key Features of Division 296:

• Applicability: This tax targets individuals whose Total Superannuation Balance (TSB) exceeds the $3 million at the end of a financial year.
• Earnings Calculation: It includes both realised and unrealised gains, meaning increases in asset values are taxed even if they are not sold.
• Threshold: The $3 million cap is not indexed, hence this will potentially affect more individuals over time due to inflation.
• Payment options: Individuals can choose to pay the liability personally or release funds from their superannuation accounts.

Calculating the Division 296 Tax:

To determine the Division 296 tax liability, the following steps need to be taken:

1. Calculate Earnings:

Earnings = (TSB at end of financial year + Withdrawals – Net Contributions) – TSB at start of financial year.

2. Determine Proportion of Earnings Attributed to Balance Over $3 Million:

Proportion = (TSB at end of financial year – $3 million) / TSB at end of financial year.

3. Calculate Tax Liability:

Tax = 15% × Earnings × Proportion

Example Calculation:

Consider an individual with the following superannuation:

• TSB on 30 June 2026: $4,300,000
• TSB on 30 June 2025: $4,000,000
• Contributions during the year: $30,000
• Withdrawals during the year: $80,000

Step 1. Calculate Earnings

Earnings = ($4,300,000 + $80,000 – $30,000) – $4,000,000 = $350,000

Step 2. Determine Proportion Attributable to Balance over $3 Million

Proportion = ($4,300,000 – $3,000,000) / $4,300,000 ≈ 30.23%

Step 3. Calculate Tax Liability

Tax = 15% × $350,000 × 30.23% ≈ $15,875.25

Therefore, the individual would incur an additional tax liability of approximately $15,875.25 under Division 296 for the 2025-2026 financial year if this proposal were to go ahead in its current form.

Some Considerations:

• As seen in the example above, it may be worth considering retaining excess funds within the superannuation environment, given that the alternative may involve holding funds in a higher-taxed vehicle.
• The inclusion of unrealised gains means that individuals may face tax liabilities on increases in asset values without actual income or gain realisation.
• The lack of indexation on the $3 million threshold could lead to more individuals being impacted over time due to inflation and investment growth.
• For Defined Benefit Funds, these schemes have specific valuation rules. Members of these style of funds may defer tax payment until retirement.
• We do not agree with the proposed law in its current form. Like many professionals in the industry, we oppose the taxation of unrealised gains.
• This tax is not yet law. It has yet to pass the Senate and remains subject to significant debate and potential amendment.

 Next Steps / Where to from here?

• Review your current superannuation balance and investment strategy.
• Use the calculator here to see the estimated tax that may apply to you.
• If you have concerns about this proposed tax, reach out to us to assess the potential impacts and explore strategies in collaboration with a financial adviser to manage or mitigate additional tax liabilities.
• Stay informed about legislative developments, as the proposed measures are subject to parliamentary approval and potential amendments may applied.

There’s no one-size-fits-all answer when it comes to deciding whether to keep money in super or withdraw it if this tax is implemented. The good news is you don’t have to navigate it alone. We’re here to help you understand your options, crunch the numbers, and develop a tailored strategy.

Rest assured, we’re closely monitoring these legislative developments on your behalf. Stay connected with us and please reach out to MGI tax accountants and consultants or contact us on (07) 3002 4800 so you will know exactly what action to take.

No More Deductions for ATO Interest Charges: What You Need to Know Before 1 July 2025

Starting 1 July 2025, you will no longer be able to claim tax deductions for interest charges imposed by the Australian Taxation Office (ATO), specifically the General Interest Charge (GIC) and Shortfall Interest Charge (SIC).

What are GIC and SIC?

The ATO applies the General Interest Charge (GIC) to unpaid tax liabilities e.g. unpaid Business Activity Statement (BAS) or Income Tax debt, accruing daily on a compounding basis. The Shortfall Interest Charge (SIC) is imposed when a taxpayer’s self-assessment results in a tax shortfall, accruing from the original due date until the amended assessment is issued.

Key Changes Effective from 1 July 2025

• Interest charges incurred on or after 1 July 2025 will no longer be tax-deductible, regardless of when the underlying tax debt was assessed.
• Those with payment arrangements extending beyond 1 July 2025 should note that any GIC or SIC accrued after this date will not be deductible, even if related to earlier debts.
• If GIC or SIC incurred after 1 July 2025 is later remitted by the ATO, the remitted amount will not need to be included as assessable income, since it was not previously deducted.

Implications for You

• Without the ability to deduct GIC and SIC, the after-tax cost of carrying tax debt will rise, making it more expensive for businesses and individuals to manage unpaid tax liabilities.
• Businesses may face cash flow challenges due to the higher cost of tax debts. It’s necessary to reassess your financial strategies to accommodate this change.
• While ATO interest charges will no longer be deductible, interest on commercial loans used to pay tax debts is still be deductible for businesses.

Recommendations

1. Aim to pay off any existing tax liabilities before 1 July 2025 to retain the deductibility of associated interest charges.
2. If you’re on an ATO payment plan, consider accelerating payments to minimise non-deductible interest accruals post-1 July 2025.
3. Engage with MGI to explore the implications for you and discuss options and to ensure compliance with the new regulations.
4. Implement tax lodgement and payment compliance measures to avoid incurring GIC and SIC.

This change underscores the importance of timely tax payments and proactive financial management and planning. By understanding the implications and taking appropriate actions, you can mitigate the impact of these changes on your business’ financial health.

MGI has a number of expert tax accountants and consultants who can assist you to understand these changes and help you with up to date tax advice. If you have any questions speak to your MGI advisor today on (07) 3002 4800.

MGI refers to one or more of the independent member firms of the MGI international alliance of independent auditing, accounting and consulting firms. Each MGI firm in Australasia is a separate legal entity and has no liability for another Australasian or international member’s acts or omissions. MGI is a brand name for the MGI Australasian network and for each of the MGI member firms worldwide. Liability limited by a scheme approved under Professional Standards Legislation.