The Government has released draft superannuation legislation for the proposed new tax on members with more than $3m in super – known as “Division 296 tax”.

The Federal Government hasn’t moved from its original direction and so the unpopular elements remain:

  • The mechanism for calculating the “earnings” that will be taxed is based on movement in a member’s total superannuation balance. By default, that will include unrealised capital gains.
  • No refunds in years when earnings are negative.
  • No indexation of the $3m threshold

With regard to earnings

Earnings is essentially movement in a member’s total superannuation balance adjusted for net contributions and withdrawals.

Earnings will be specifically adjusted to reflect the fact that increases in a member’s balance arising from inheriting super pensions, receiving transfers from a partner or ex partner’s superannuation (under a contribution split or family law split) and insurance payouts are not earnings and shouldn’t be subject to the tax. Interestingly, even some amounts allocated from reserves will be excluded from earnings.

The Government will not chase deceased members for Division 296 taxes that would otherwise be incurred in the year of death. A member who dies before the end of the year will be deemed to have a $nil tax regardless of what’s happened to their super during the year. If their balance has been left in super but transferred to a spouse (for example, a reversionary pension or a death benefit pension) it will be counted in the inheriting spouse’s $3m. So, this is only relevant for people whose super is still waiting to be dealt with at the end of the year.

How much of the earnings will be taxed?

The Bill reduces the tax concessions for individuals with a total superannuation balance (TSB) above $3 million by imposing an additional 15 per cent tax on certain earnings under Division 296 of the Income Tax Assessment Act 1997.”

When and how it’s paid

The tax will be levied on individuals but can be paid from a super fund using the usual release authority mechanism.

What can we expect next?

Treasury has invited responses to the draft legislation, but there’s a very short turnaround required (18 October 2023), suggesting major changes are not expected.

MGI SQ will provide further updates in due course on the legislation. In the meantime if you have any queries please don’t hesitate to contact us.