The taxing of unrealised gains in superannuation funds was proposed in 2023 by the then newly elected government. The proposed legislation referred to as “Division 296 tax” is set to apply to superannuation member balances above set values and in doing so apply a tax based on the value of the member balance rather than actual realised income or gains.
Where are we now?
Division 296 is still scheduled to take effect from 1 July 2025, however, the Bill containing Division 296 is currently before the House of Representatives and will then need to proceed through the Senate before being given Royal Assent.
Importantly, when first introduced into the House of Reps, the bill was referred to the Senate Economics Legislation Committee for analysis and comment. This often results in changes to proposed bills and it was anticipated that the taxing on unrealised gains would be a target for amendment or removal. The Senate Committee has recently handed down its view that the bill should be passed without amendment, noting the Greens wanted to increase the application of Division 296.
Put simply, given the majority held by the Federal Government it is expected that the bill will pass into law resulting in an additional 15% tax on superannuation fund members with balances of more than $3 million.
What’s happening?
In simple terms the main changes arising from the proposed Division 296 are as follows:
- A flat additional 15% tax (in addition to Division 293 and the income tax paid by the superannuation fund) will apply to the “earnings” of the fund, if a member’s balance is in excess of $3m;
- Earnings are defined in simple terms to be the movement in a member’s balance adjusted for deposits and withdrawals. This by definition means that the tax is levied on the movement in the market value of the assets of the fund and therefore includes unrealised capital gains;
- If the superannuation fund has a year of poor performance and has a negative return, there is no refund of tax;
- There is no plan for the $3m threshold to be subject to indexation meaning that over time the impact will be felt across wider parts of the community;
- The tax will be imposed directly on individuals at first instance although a member can elect to pay the tax from their superannuation account, similar to the way Division 293 contributions tax is levied and paid).
The impact of Division 296 is already being felt through the ATO’s focus on valuations at year end for SMSF’s. The ATO are now requiring auditors to examine the balances more closely and require more up to date valuations than historically – the three year cycle of valuing assets will no longer hold. Please refer to out article on this for more information.
If you have any questions on how this may impact you, please reach out to your Engagement Partner.
